A Health Savings Account (HSA) is a tax-advantaged account available to people who have a High Deductible Health Plan (HDHP). It offers a triple tax advantage that can significantly lower your tax bill.
Triple Tax Benefits
- Deductible Contributions: Money you put into the account is 100% tax-deductible (up to the limit), lowering your taxable income for the year.
- Tax-Free Growth: Interest or earnings in the account grow tax-free.
- Tax-Free Distributions: Withdrawals are completely tax-free if used for qualified medical expenses.
Contribution Limits (2025)
You can contribute up to the following limits for the 2025 tax year:
- Self-Only Coverage: $4,300
- Family Coverage: $8,550
- Age 55+ Catch-Up: If you are age 55 or older, you can contribute an additional $1,000.
Reporting Requirements (Form 8889)
You must file Form 8889 with your tax return if you made contributions to or took distributions from an HSA.
- Distributions: You must report the total distributions and certify how much was used for qualified medical expenses.
- Qualified Expenses: These include doctor visits, prescriptions, dental care, and vision care. Non-qualified withdrawals are subject to income tax plus a 20% penalty (unless you are 65 or older or disabled).
Official IRS Resource:Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans
