Health Savings Accounts: What You Need to Know

Health Savings Accounts: What You Need to Know

October 01, 2021

A health savings account (HSA) is a tax-exempt trust or custodial account set up with a qualified HSA trustee (such as a bank or insurance company) that is used to pay or reimburse certain medical expenses.

HSAs were first available as of January 1, 2004, and have grown greatly in popularity. An eligible individual (with or without employer involvement) can establish an HSA. Eligible participating individuals can make contributions, up to statutory limits, and get a tax deduction. Investment earnings on HSA accounts are tax free, and HSA funds used to pay qualified medical expenses are completely tax free. Employers contributing to their eligible employees’ HSAs, or that offer HSAs through a cafeteria plan also receive federal tax deductions for the contributions.

Because of these benefits, HSAs are highly regulated; by Internal Revenue Code Section 223, as well as numerous IRS notices and guidance documents. IRS Publication 969provides a basic overview of HSA regulations for employers and employees.

In response to the spread of the 2019 Novel Coronavirus (COVID-19), on March 11, 2020, the IRS released a noticeregarding HSA-qualified high deductible health plan (HDHP) coverage of testing and treatment related to COVID-19. Under the notice, health plans that otherwise qualify as HSA-eligible HDHPs will not lose that status solely because they cover the cost of testing for or treatment of COVID-19 before the plan’s minimum deductible has been met. The notice provides that vaccinations continue to be considered preventive care and can be paid for by the HDHP without first meeting a deductible.

The following provides a summary of the HSA rules.


To be an eligible individual and qualify for an HSA, you must meet the following requirements.

  • You must be covered under a high deductible health plan (HDHP) on the first day of the month.
  • You have no other disqualifying health coverage except what is
  • You are not enrolled in
  • You cannot be claimed as a dependent on someone else’s tax return for the

High Deductible Health Plan

To participate in an HSA, an individual must be covered under an HDHP on the first day of the month.

The HDHP must provide “significant benefits.” For example, it cannot exclude in-patient care or hospitalizations, be a fixed indemnity benefit, or only cover certain specified diseases such as cancer.

In 2021, the individual must have an annual deductible of at least $1,400 for self-only coverage ($1,400 for 2022), and the deductible and out-of-pocket expense cannot exceed $7,000 ($7,050 for 2022). These dollar figures change annually. For an individual enrolled in family coverage (or, other than self-only), the deductible must be at least $2,800 in 2021 ($2,800 for 2022), and the deductible and out-of-pocket expenses cannot exceed $14,000 ($14,100 for 2022).

Generally, an HDHP may not provide benefits for any year until the minimum deductible for that year is satisfied. However, there’s a safe harbor that allows an HDHP to have no deductible for preventive care, in part because the Patient Protection and Affordable Care Act (ACA) requires non-grandfathered group health plans and issuers to provide benefits for certain preventive health services without imposing cost-sharing requirements.

Before July 17, 2019, the definition of preventive care generally did not include any service or benefit intended to treat an existing illness, injury, or condition.

Effective July 17, 2019, the IRS expanded the list of preventive care benefits that an HDHP can provide without a deductible or with a deductible below the annual minimum deductible.

Read the entire article here.

Published 7/5/2018

Updated 5/28/2019, 7/18/2019, 3/11/2020, 4/5/2020, 7/30/2020, 8/12/2020, 9/7/2021