Health Savings Account (HSA)

If you’re a small business owner, HR manager, or employee trying to make sense of health benefits, the Health Savings Account (HSA) is one of the most useful tools available, and one of the most misunderstood. It is not insurance, and it is not a use-it-or-lose-it account. It is a personal, portable savings account with unusually good tax treatment, available to people enrolled in a qualifying high-deductible health plan.

What Is a Health Savings Account?

The Basics

A Health Savings Account is a tax-advantaged account available to individuals who are enrolled in a qualified high deductible health plan (HDHP). Contributions can be made by the employee, the employer, or both. Money in the account is used to pay qualified medical expenses.

Two features make the HSA distinctive. First, the account belongs to the individual, not the employer, so it travels with them when they change jobs. Second, unused funds roll over year after year and can be invested, which makes an HSA a long-term savings vehicle rather than an annual spending account.

Who Is Eligible

To contribute to an HSA, an individual generally must:

• Be enrolled in a qualified HDHP
• Have no other disqualifying health coverage
• Not be enrolled in Medicare
• Not be claimed as a dependent on someone else’s tax return

2026 HSA Contribution Limits

The IRS adjusts these amounts annually for inflation. For 2026:

• Self-only coverage: $4,400
• Family coverage: $8,750
• Catch-up contribution (age 55+): an additional $1,000, set by statute and not indexed

2026 HDHP Requirements

Under the general 2026 HDHP rules, a plan must have a minimum deductible of $1,700 for self-only coverage or $3,400 for family coverage, and its in-network out-of-pocket maximum cannot exceed $8,500 for self-only coverage or $17,000 for family coverage. Beginning January 1, 2026, an individual-market bronze or catastrophic plan available through an ACA Exchange is also treated as an HDHP for HSA purposes even if it falls outside those ordinary deductible or out-of-pocket limits. Certain substantially identical off-Exchange versions also qualify under IRS guidance. HSA eligibility still requires the person to have no disqualifying other coverage.

The Triple Tax Advantage

At the federal level, HSAs generally receive three tax advantages:

• Eligible contributions may be excluded from income or deductible.
• Interest and investment earnings generally grow tax-free.
• Distributions used for qualified medical expenses are generally tax-free.

State tax treatment varies; California and New Jersey generally do not follow the federal HSA income-tax treatment. After age 65, funds can be withdrawn for non-medical purposes without penalty, though those withdrawals are taxed as ordinary income. That treatment is what leads many people to use an HSA as a supplemental retirement account.

How HSAs Interact With HRAs

This is where employers most often run into trouble, so it is worth being precise.

An HRA cannot be used to fund an HSA. They are separate mechanisms. An HRA reimburses qualified medical expenses; HSA contributions must be made as HSA deposits by the individual or the employer.

A general-purpose HRA disqualifies HSA eligibility. If an employee has access to an HRA that can reimburse general medical expenses before the HDHP deductible is met, that coverage is disqualifying and the employee cannot contribute to an HSA.

Limited-purpose and post-deductible HRAs preserve eligibility. An HRA restricted to dental, vision, and preventive care, or one that only begins reimbursing after the statutory minimum deductible is satisfied, can coexist with an HSA.

The same rules apply to an ICHRA. Being offered an ICHRA does not by itself disqualify an employee from HSA eligibility; the question is what coverage the employee actually has and what the ICHRA may reimburse. Generally, an ICHRA must reimburse premiums only to avoid being disqualifying coverage. An ICHRA that can reimburse general medical expenses before the applicable HDHP deductible is met generally prevents HSA contributions, while a properly designed limited-purpose or post-deductible arrangement may preserve eligibility.

Why This Matters for Small Businesses

For employers, HSAs offer a way to contribute to employee healthcare while giving employees ownership of the account. Employer HSA contributions for an eligible individual are generally excluded from federal income-tax withholding and federal employment taxes whether made directly by the employer or through a Section 125 cafeteria plan, subject to the annual contribution limit and other applicable rules.

For employees, an HSA turns healthcare saving into an asset they own. That portability is genuinely valuable in a labor market where people change jobs frequently.

How SimplyHRA Fits In

SimplyHRA helps employers design ICHRA plans that account for HSA interaction rather than colliding with it, so employees who want to keep contributing to an HSA can do so. We handle plan documents, coverage verification, substantiation, and reporting, and our licensed benefits specialists help employees choose a plan that matches their situation, including whether an HSA-qualified HDHP makes sense for them.

If you want to offer both an HRA and HSA-compatible coverage, schedule a free consultation and we will map out a compliant structure.

Frequently Asked Questions

What are the 2026 HSA contribution limits?

For 2026, the limits are $4,400 for self-only coverage and $8,750 for family coverage. Individuals aged 55 and older may contribute an additional $1,000 catch-up amount.

Can I have both an HSA and an ICHRA?

Yes, if the employee otherwise qualifies for an HSA and the ICHRA is not disqualifying coverage. Generally, the ICHRA must reimburse premiums only, or be structured as a qualifying limited-purpose or post-deductible arrangement. An ICHRA that can reimburse general medical expenses before the applicable HDHP deductible is met generally prevents HSA contributions.

Can an employer contribute to an employee’s HSA?

Yes. Employers may contribute directly, and contributions made through a cafeteria plan are generally exempt from payroll taxes. Employer and employee contributions together count toward the same annual limit.

What happens to my HSA if I change jobs?

The account is yours. It goes with you regardless of employment, and the balance continues to roll over. You can only make new contributions while enrolled in a qualifying HDHP.

Do HSA funds expire at the end of the year?

No. Unlike a health FSA, HSA balances carry over indefinitely and can be invested for long-term growth.

What happens to an HSA at age 65?

You can no longer contribute once enrolled in Medicare, but you can continue spending the balance. Withdrawals for qualified medical expenses remain tax-free, and non-medical withdrawals are taxed as ordinary income without the additional penalty that applies before 65.