Is HSA Taxable?

What’s the deal with HSAs? Are they taxable? A lot of people are confused about whether or not their Health Savings Account is taxable. 

HSAs are a great way to save for medical expenses, but it’s important to know that they are taxable.

Is HSA taxable? No, HSA is not taxable, as long as funds are used to pay for qualified medical expenses. A health savings account (HSA) is a tax-exempt trust or custodial account you establish with a qualified HSA trustee to pay or reimburse medical expenses incurred as an eligible individual. To qualify for an HSA, you must be an eligible person.

Is HSA Taxable?

A Health Savings Account (HSA) is a tax-exempt trust or custodial account you create with a qualified HSA trustee to pay or reimburse medical costs that you incur. To qualify for an HSA, you must be an eligible individual.

An HSA is a vehicle through which you can contribute to your own medical expenses. There’s no need for permission or authorization from the IRS in order to establish an HSA. An HSA is established through a trustee. A bank, an insurance company, or anybody else who has been authorized by the IRS to serve as a trustee of individual retirement It’s possible to establish an HSA through a trustee who is not your health plan provider. Your employer may already have a list of HSA trustees in your region.

Benefits Of An HSA? 

  • An HSA allows you to reap several advantages. You may deduct contributions you, or someone other than your employer, make to your HSA even if you don’t itemize your deductions on Schedule A (Form 1040).
  • Your employer’s contributions to your HSA (including those made through a cafeteria plan) may be excluded from your gross income.
  • Your contributions are kept in your account until you use them.
  • The interest or other gains on the assets in your account are tax-free.
  • Distributions are frequently tax-free if you spend qualified medical expenses.
  • An HSA is a flexible, portable health savings account that allows you to save money on medical expenses. It follows you if you change jobs or retire from working.

Calculating Taxes On HSA

A Health Savings Account (HSA) is a tax-exempt trust or custodial account. You can use your HSA to pay or be reimbursed for medical expenses that are eligible for tax-free distributions after you open it.

If you take money from your HSA for reasons other than health care, you’ll have to pay income tax on it and possibly 20% more. You don’t have to withdraw funds from your HSA each year

How To File HSA On Federal Taxes?

Whether you report your distributions depends on whether or not you have used them to pay for qualifying medical expenses.

  • You don’t pay tax on a distribution from your HSA if you use it for qualifying medical costs, but you must report the amount on Form 8889. The IRS views an excess contribution, including one taken out after the due date of your return, to be taxable even if it is used for qualifying medical expenses. Fill out the form as directed, attach it to your Form 1040, 1040-SR, or 1040-NR, and send it in.
  • You must pay tax on a distribution from your HSA if you don’t spend it on qualified medical costs. Report the amount on Form 8889 and submit it with your Form 1040, 1040-SR, or 1040-NR. You may be required to pay an additional 20% tax on your taxable distribution.

State Taxes On HSA

HSA contributions are also exempt from state income taxes in nearly all states, with the notable exception of California, New Jersey, and Alabama. This benefit may save you up to 8% on your taxes in states that have a state income tax if you live in a state with an income tax.

How To Qualify For An HSA Contribution?

To be an eligible participant and receive an HSA contribution, you must fulfill the following conditions.

  • You’re covered under an HDHP, on the first day of the month.
  • You have no other health coverage except for what is allowed under Other health coverage.
  • You aren’t enrolled in Medicare.
  • You can’t be claimed as a dependent on someone else’s tax return.

Contributions to an HSA

An HSA can be contributed to by any eligible person. A participant’s or beneficiary’s employer and family might all contribute to the participant’s HSA in the same year. An individual who establishes an HSA on his or her own (or unemployed) may contribute. An eligible individual’s family or any other individual may also give money on his/her behalf. HSA contributions must be made in cash only. Stock or property don’t count.

Limit on Contributions

The maximum amount you or anybody else can contribute to an HSA is determined by the type of HDHP coverage you have, your age, the date you become a qualified individual, and the date you cease to be a qualified individual. For 2021, if you have self-only HDHP coverage, you can contribute up to $3,600If you have family HDHP coverage, you can make a maximum of $7,200 in contributions.


If you have an HSA, be sure to use it to pay for qualified medical expenses. You won’t have to worry about taxes on the money you withdraw as long as it’s used for that purpose. And if you don’t yet have an HSA, now might be a good time to open one up—the tax benefits are too good to pass up!