What an HSA is
An HSA is a tax-exempt trust or custodial account you set up with a qualified HSA trustee to pay or reimburse certain medical expenses you incur. That is the IRS’s own definition, from Publication 969, and three parts of it matter. First, the account is tax-exempt: it is a trust or custodial account, not a bank feature of your health plan. Second, the trustee must be qualified — a bank, an insurance company, or anyone already approved by the IRS to be a trustee of individual retirement arrangements or Archer medical savings accounts. Third, the HSA can be established through a trustee that is different from your health plan provider: the account and the insurance are separate things, even though they work as a pair.
No permission or authorization from the IRS is necessary to establish an HSA, and you set it up with a trustee — your employer may already have information on HSA trustees in your area. Contributions can come from you, from your employer, or from any other person, including a family member, on your behalf. Contributions other than employer contributions are deductible on your return whether or not you itemize deductions, employer contributions are not included in income, and distributions used to pay qualified medical expenses are not taxed.
The IRS lists the benefits in five lines, and they are worth reading as a set because they are the whole case for the account. You can claim a tax deduction for contributions even if you do not itemize. Employer contributions may be excluded from gross income. The contributions remain in your account until you use them. The interest or other earnings on the assets in the account are tax free. Distributions may be tax free if you pay qualified medical expenses. And an HSA is portable — it stays with you if you change employers or leave the work force. Nothing in that list is a promise about investment returns; the account holds what you put in it, plus whatever earnings the assets in it produce.
An HSA is not health insurance. It does not pay the insurer, it does not set your deductible, and it does not cover you if you have no plan. It is a way to pay for medical expenses with money that has not been taxed, and it only exists alongside a qualifying health plan. The rest of this guide is about that pairing — what counts as a qualifying plan, who is eligible, how much can go in, and what the money can be spent on. Self-employed buyers often pair an HSA with a high-deductible plan - see self-employed health insurance.
The high-deductible plan it pairs with
You can only contribute to an HSA if you are covered by a high-deductible health plan, an HDHP, on the first day of the month. An HDHP has a higher annual deductible than typical health plans, and a maximum limit on the sum of the annual deductible and out-of-pocket medical expenses you must pay for covered expenses. Out-of-pocket expenses include co-payments and other amounts, but they do not include premiums.
The IRS sets the HDHP thresholds each year, and Publication 969 publishes the 2026 figures directly. For 2026, an HDHP must have a minimum annual deductible of $1,700 for self-only coverage or $3,400 for family coverage, and maximum annual out-of-pocket expenses of $8,500 for self-only coverage or $17,000 for family coverage. Those figures change every year for inflation, so a plan that qualified last year might not qualify this year if its terms changed — check the plan’s own Summary of Benefits and Coverage document for the deductible and out-of-pocket figures, and confirm them against the current year’s Publication 969 before you rely on them.
An HDHP may provide preventive care benefits without a deductible, or with a deductible below the minimum. The preventive care the IRS lists includes periodic health evaluations, routine prenatal and well-child care, immunizations, tobacco cessation and obesity weight-loss programmes, and screening services — including screening for cancer, for heart and vascular diseases, and for a list of other conditions. Notice 2024-75 expanded that list to include over-the-counter oral contraceptives and male condoms, and clarified that all breast cancer screening for people not diagnosed with breast cancer is preventive care, and that continuous glucose monitors for people diagnosed with diabetes are generally preventive care. A plan can also have a zero deductible for selected insulin products.
There is one more HDHP rule that catches people out. Some family plans have deductibles for both the family as a whole and for individual family members: if you meet the individual deductible for one family member, you do not have to meet the higher family deductible. Under those plans, if either the family deductible or the individual deductible is less than the minimum annual deductible for family coverage, the plan does not qualify as an HDHP at all. If your family plan works that way, check both numbers, not just the family one.
The crossover with this site’s health insurance guides is direct. The ACA enrollment guide explains how marketplace plans work, and the ACA subsidy calculator estimates the subsidy for one — but a marketplace plan is only HSA-eligible if it meets the HDHP thresholds above, and most marketplace plans do not. If you are choosing a plan with an HSA in mind, the HDHP test is a separate question from the premium or the subsidy, and it has to be answered from the plan’s own figures. HSAs usually come with an employer high-deductible plan - see employer health insurance explained.
Who can contribute — and who cannot
Being covered by an HDHP is necessary but not sufficient. Publication 969 sets four requirements for an eligible individual: you are covered under an HDHP on the first day of the month; you have no other health coverage except what the publication permits; you are not enrolled in Medicare; and you cannot be claimed as a dependent on someone else’s tax return. Each spouse who is an eligible individual and wants an HSA must open a separate HSA — you cannot have a joint HSA.
The “no other health coverage” rule is the one that most often disqualifies people who think they qualify. You may still be eligible if your spouse has non-HDHP family coverage, provided you are not covered by that plan. You may also have additional insurance that provides benefits only for workers’ compensation liabilities, a specific disease or illness, a fixed amount per day of hospitalization, accidents, disability, dental care, vision care, long-term care, or telehealth and other remote care. But a general-purpose health flexible spending arrangement or health reimbursement arrangement that pays or reimburses qualified medical expenses will generally disqualify you — because those arrangements give you non-HDHP benefits that undercut the high-deductible requirement.
There are exceptions to that FSA and HRA rule, and they are narrow. You can contribute while covered under a limited-purpose FSA or HRA, which pays only for the permitted items and preventive care; a suspended HRA, elected before the coverage period begins, which pays nothing during the suspension except preventive care and permitted items; a post-deductible FSA or HRA, which pays nothing before the HDHP’s minimum deductible is met; or a retiree-only HRA, which pays only expenses incurred after retirement. A prescription drug plan can sit alongside an HDHP and still leave you eligible, but only if the drug plan provides no benefits until the HDHP’s minimum deductible has been met — if you can receive drug benefits before the deductible is met, you are not an eligible individual.
Medicare is a hard stop, and it is the rule that matters most for people approaching 65. Beginning with the first month you are enrolled in Medicare, your contribution limit is zero, and that applies to periods of retroactive Medicare coverage — so if you delayed applying for Medicare and your enrollment is later backdated, any contributions made during the retroactive period are considered excess. You can keep spending what is already in the account after you enroll in Medicare; you just cannot put more in. The site’s Medicare enrollment guide explains when enrollment happens, and the HSA rule is the reason the timing of that enrollment matters for the account as well as for the coverage.
The last-month rule is the one piece of good news in the eligibility section. If you are an eligible individual on the first day of the last month of your tax year — December 1 for most taxpayers — you are considered an eligible individual for the entire year, and you can contribute the full annual limit. But there is a testing period: you must remain an eligible individual from the last month of that tax year through December 31 of the following year, and if you fail to remain eligible for reasons other than death or becoming disabled, you must include in income the contributions that would not have been made except for the last-month rule, plus a 10% additional tax on that amount. An HSA cannot be funded once Medicare starts, and the parts are explained in Medicare parts explained.
How much can go in — the 2026 limits
For 2026, if you have self-only HDHP coverage, you can contribute up to $4,400. If you have family HDHP coverage, you can contribute up to $8,750. Those are the figures Publication 969 publishes for 2026, and they are the ones to use — not the 2025 figures of $4,300 and $8,550, which applied to the previous tax year. If you are an eligible individual who is 55 or older at the end of your tax year, your contribution limit is increased by $1,000 — so $5,400 for self-only coverage, and $9,750 for family coverage if only one spouse qualifies for the extra amount.
The limit is a total, not a per-contributor limit. You must reduce the amount you or any other person can contribute by the amount of any contributions made by your employer that are excludable from your income, including amounts contributed through a cafeteria plan. If you have more than one HSA in the year, your total contributions to all of them cannot be more than the limits above. And you must reduce the limit by any contribution made to an Archer medical savings account for the year.
Married couples have their own rule. If either spouse has family HDHP coverage, both spouses are treated as having family coverage, and if each spouse has family coverage under a separate plan, the contribution limit is $8,750 for 2026, split equally between the spouses unless they agree on a different division. If both spouses are 55 or older and not enrolled in Medicare, each spouse’s limit is increased by the additional $1,000, and each spouse must make the additional contribution to their own HSA — the total for the couple cannot be more than $10,750 under family coverage. Contributions must be made in cash; contributions of stock or property are not allowed.
Contributions for a calendar year can be made through the unextended tax-filing deadline for that year, and eligibility is measured month by month: if you were not an eligible individual for the entire year, or you changed your type of coverage during the year, your limit is prorated — except where the last-month rule applies, as described above. If you contribute more than the limit, the excess is not deductible, and a 6% excise tax generally applies each year the excess remains in the account unless you withdraw it, plus earnings, by the return due date including extensions. The excess-contribution rule is the reason to check the limit before the year ends, not after the return is filed.
What the money can pay for — and what it cannot
You can receive tax-free distributions from your HSA to pay or be reimbursed for qualified medical expenses you incur after you establish the HSA. Qualified medical expenses are the expenses defined in the tax code for medical care — the same definition that governs the medical expense deduction — and they include the costs of diagnosis, treatment and prevention of disease, and the amounts paid for medical care for yourself, your spouse and your dependents. You do not have to make withdrawals from your HSA each year, and the money stays in the account until you use it.
What the money cannot do without tax consequences is pay for anything else. If you receive distributions for other reasons, the amount you withdraw will be subject to income tax and may be subject to an additional 20% tax. That additional tax is the price of treating the account as a general savings account, and it is the reason the account should not be used for non-medical spending while you are under 65. The distribution rules are reported on Form 8889, which is filed with your tax return.
Two practical points follow from that. First, keep records: the HSA does not check whether an expense is qualified before it pays out, so the responsibility for proving that a distribution was for qualified medical expenses is yours, at tax time. Second, the account’s portability matters here — because the money stays with you when you change employers or leave the work force, an HSA opened in one job can pay for medical expenses years later, including in retirement, when the expenses are often larger and the income to pay them is smaller.
The HSA also interacts with the other tax-favored accounts Publication 969 covers. A health FSA is use-it-or-lose-it within its plan year, with a limited carryover if the plan permits it; an HRA is funded by the employer only, and the employee cannot contribute. An HSA is the only one of the three that is portable, that can be funded by the employee, the employer or anyone else, and that carries its balance forward without a deadline. That combination is why the eligibility rules are strict: the account is the most flexible of the three, so the law limits who can open one. The W-2 trap also decides whether the premium counts - see the S corporation health insurance deduction mistake.
HSA vs FSA vs HRA — the short comparison
The three accounts are easy to confuse because they all pay for medical expenses with pre-tax money, and Publication 969 covers all three in one place. The differences are who funds them, who owns them, and what happens to the money at the end of the year.
An HSA is funded by you, your employer, or anyone else on your behalf; it is owned by you; the balance carries forward indefinitely; and it requires HDHP coverage. A health FSA is funded by you and, optionally, your employer; it is owned by the employer’s plan; the balance is generally forfeited at the end of the plan year except for the limited carryover the plan permits — for 2025 the salary-reduction limit was $3,300 and the maximum carryover $660 — and it does not require an HDHP. An HRA is funded by the employer only; the employee cannot contribute; it is owned by the employer; and it does not require an HDHP.
The practical consequence is that the three accounts suit different situations. An FSA suits someone who knows their medical spending for the year in advance and wants to pay for it pre-tax, and who is willing to lose what is left over. An HRA suits someone whose employer offers one, since the employer decides the terms. An HSA suits someone who has an HDHP, who wants the balance to carry forward, and who may want to build a balance over years rather than spend it in the year it was contributed. None of the three is a substitute for health insurance — each one pays for expenses, and the insurance is what limits how large those expenses can be.
One combination deserves a warning of its own: you generally cannot have both an HSA and a general-purpose FSA or HRA at the same time, as described in the eligibility section. If your employer offers an FSA alongside an HDHP, ask whether it is a limited-purpose FSA — one that pays only for dental and vision expenses, for example — because a general-purpose FSA will disqualify your HSA contributions for every month it covers you. Plan N and an HSA do not mix - see Medicare Supplement Plan N.
Worked example
Consider two ILLUSTRATIVE people, both 40, both with self-only HDHP coverage for the whole of 2026. The first contributes $4,400 to an HSA during the year — the full 2026 self-only limit — and pays $2,000 of qualified medical expenses from the account. The contributions were deductible, the distributions for the qualified expenses were tax-free, and the remaining $2,400 stays in the account for future years. The second contributes nothing, and pays the same $2,000 of medical expenses from after-tax income. The medical care is the same; the difference is that the first person paid for it with money that was never taxed, and still holds $2,400 for the next year’s expenses.
Now consider a third ILLUSTRATIVE person, 66, who enrolls in Medicare in July 2026. From the first month of Medicare enrollment, the contribution limit is zero — so contributions made for the months after enrollment are excess contributions, even if they were made before the enrollment was processed, if the enrollment is backdated. The money already in the account can still be spent tax-free on qualified medical expenses. These are ILLUSTRATIVE examples to explain how the limits and the Medicare rule work; they are not tax advice, and no tax saving is asserted for any real person.
The test to apply before opening an HSA is the eligibility checklist, in order: is the plan an HDHP under the current year’s thresholds; is there any other coverage that disqualifies you; are you enrolled in Medicare; can you be claimed as a dependent? If the answer to the first is yes and the answers to the other three are no, the account is available. If any answer goes the other way, the account is not — and the fix is to change the coverage, not to open the account anyway.