Health Savings Accounts (HSA) allow you to pay for qualified medical expenses that aren't covered by a high-deductible health insurance policy. They can be a tax-advantaged way to pay for care now and save for future medical costs.
How to qualify for an HSA
If you are covered by a qualifying high-deductible health plan (HDHP), you generally qualify to open and contribute to an HSA. Eligibility is checked each year, and certain dependents or other coverage can affect your status.
How is an HSA funded?
After you open an HSA, you fund it with pre-tax payroll contributions or post-tax deposits (which may be deductible on your tax return). Unused funds roll over year to year, and you own the account if you change jobs.
Many HSAs let you invest balances in mutual funds, stocks, or bonds once your balance reaches a minimum threshold, allowing potential long-term growth.
What does an HSA cover?
HSAs cover a wide range of qualified medical expenses that are not reimbursed by other sources. Common examples include emergency care and inpatient hospital services; for more about hospital-related coverage, see Hospitals/Major Medical Health Insurance.
- Acupuncture
- Addiction treatment
- Artificial limbs or prosthetics
- Chiropractic care
- Dental services and dentures
- Emergency care
- Fertility treatments and enhancements
- First-aid supplies
- Health insurance premiums from COBRA or while receiving unemployment compensation
- Laser eye surgery
- Long-term care insurance premiums (limited)
- Medical equipment
- Medicare Part A or B premiums (in specific circumstances)
- Mental health treatment
- Nursing services
- Prescribed smoking-cessation aids or weight-loss drugs when prescribed
- Prescription medications
- Surgery
- Vision care and aids
What an HSA typically does not cover
- Babysitting or household help
- Cosmetic surgery unrelated to a medical condition
- Diaper service
- Electrolysis for hair removal
- Funeral expenses
- Hair transplants
- Health club dues
- Maternity clothing
- Medications that are not prescribed
- Over-the-counter diet drinks or vitamins (unless prescribed)
- Swim lessons
- Teeth whitening
- Weight-loss programs that are not prescribed by a doctor
If you use HSA funds for a non-qualifying expense, the distribution is generally taxable and may be subject to an additional tax penalty unless an exception applies.
How do you use your HSA funds?
Use the debit card, checks, or online transfers associated with your HSA to pay for qualifying medical expenses. Qualified distributions are typically tax-free when used for eligible expenses.
How do you enroll in an HSA?
Talk to your employer, insurance agent or bank about starting an HSA. As soon as the account is funded, you may begin using the funds for qualified expenses; to get an online quote or connect with an agent, talk to your agent.
Health Savings Accounts supplement your health insurance and can help manage out-of-pocket costs while offering tax benefits.
Frequently Asked Questions
Who can contribute to an HSA?
Any individual covered by a qualifying high-deductible health plan and who has no disqualifying coverage or enrollment in Medicare can generally contribute to an HSA.
Can I keep my HSA if I change jobs?
Yes. An HSA is owned by you, not your employer, so you keep the account and any funds if you change jobs.
Are HSA withdrawals taxable?
Withdrawals used for qualified medical expenses are typically tax-free; non-qualified withdrawals are subject to income tax and may incur a penalty.
Can I use HSA funds for a family member?
You can use HSA funds to pay for qualified medical expenses of your tax dependents even if they are not covered by your HDHP.
When should I keep receipts for HSA spending?
Keep receipts for any HSA distributions in case you need to prove an expense was qualified for tax or audit purposes.