Making Contributions to Health Savings Accounts
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Making Contributions to Health Savings Accounts
Contributions to HSA accounts may be made by individuals, employers, and other individuals (including family members). Contributions made by employers and employees through payroll deduction are treated the same way as payment of health insurance premiums for tax purposes—these contributions are not counted as "wages" when determining income and employment taxes. This means that HSA contributions made through your job can reduce both your and your employer’s income and FICA taxes.
Contributing outside of the job
Contributions can also be made outside of your employment. In this case, you pay no income taxes on your contributions and the amount you contribute to your HSA reduces your taxable income. For example, if your income is $42,000 and you make a $2,000 contribution to your HSA account, the amount of your income that is taxed is only $40,000. You are not required to itemize deductions to take the deduction for your HSA contributions. However, you do have to complete the standard Form 1040.
Things To Know
- You can make contributions on your own or through your employment.
- Contributions may also be made by other individuals, such as family members.
NOTE: As of September 2023, HSA contributions are also deductible from state income taxes in all states except California and New Jersey. The following states have no state income tax: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. New Hampshire taxes only interest and dividend income, not earned income.
Others can contribute to your account
Contributions may also be made by other individuals, such as family members. For example, parents may want to help their children that have recently graduated from college and are now on their own to fund their HSA accounts. In these situations, the person receiving the funds (i.e., the son or daughter) receives the tax deduction on their income taxes.
For families with married couples, the family can open one or two HSA accounts, if both spouses are eligible. However, the total contribution to the two accounts cannot exceed the maximum allowed for the year (including pro-rated amounts). If both spouses are age 55 or older, each spouse must open an account in their own name to allow them both to make catch-up contributions. As with IRAs, joint accounts are not permitted.
You can transfer funds from other accounts
Funds may be transferred (once in your lifetime) from certain types of individual retirement accounts (IRAs) to help fund your HSA account without paying a tax penalty for early withdrawal from your IRA. However, the amount transferred cannot exceed your annual HSA contribution for the year, including any allowed catch-up contribution. You can only transfer funds from one IRA in your name to your own (not someone else’s) HSA. You must also maintain your HSA-qualified coverage for 12 calendar months after the rollover is made or some of the rollover will be taxable.