General Questions and Answers

Q: What is the tax treatment of an eligible individual’s HSA contributions?

A: Contributions made by an eligible individual to an HSA are deductible by the eligible individual in determining adjusted gross income (i.e. above the line). The contributions are deductible whether or not the eligible individual itemizes deductions.  However, the individual cannot, at the same time, deduct the contributions as medical expense deductions under section 213.

Q: What is the tax treatment of employer contributions to an employee’s HSA?

A: Employer contributions to eligible individuals HSA’s are treated as employer-provided coverage for medical expenses under an accident or health plan and are excludable from the employee’s gross income. Contributions to an employee’s HSA through a cafeteria plan are treated as employer contributions. The employee cannot deduct employer contributions on his or her federal income tax return as HSA contributions or as medical expense deductions under section 213.

Q: What is the tax treatment of an HSA?

A: An HSA is generally exempt from taxes (like an IRA). Earnings on amounts in the deposit account are not included in gross income as long as they are held in the HSA.

Q: How are distributions from an HSA taxed?

A: Distributions from HSAs used exclusively to pay for qualified medical expenses of the account beneficiary, spouse, or dependents are excludable from gross income. However, any amount of the distribution not used exclusively to pay for qualified medical expenses of the account beneficiary, spouse, or dependents is includable as gross income of the account beneficiary and is subject to an additional 10% tax on the amount of the distribution, except in the case of distributions made after the account beneficiary’s death, disability or attaining age 65.

The above is intended for informational purposes only and should not be construed as offering tax, or legal advice. Contact a tax, legal or accounting professional for personal advice on tax related filings and issues. Federal and State regulations are subject to change.

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