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Health Savings Account (Individual)

An HSA is a tax-favored account that can be used to pay for or reimburse medical expenses. There are certain limitations to how much you can contribute each year depending on your circumstances.

Commonly referred to as HSA or Health Spending Accounts

Do I Qualify for a Health Savings Account (Individual)?

Taxpayers who are in relatively good health and/or who have dependents may take advantage of an HSA if they are enrolled in a High Deductible Health Plan )HDHP).

2022 Health Savings Account (Individual) Details

A Health Savings Account (HSA) is a custodial account set up to save money to pay for or be reimbursed for qualified medical expenses. Taxpayers who are eligible for the plan may contribute a certain amount (determined annually) to the plan each year that they are eligible. Unlike an FSA, the amounts contributed each year do not have to be used in the year that they are contributed. The contributions to the plan may be invested and the earnings qualify for the same tax advantage treatment as the contributions.

HSA holders age 55 or older by the end of the year can contribute an additional $1,000 to their HSAs. HSA accounts are not joint accounts, they are held in the name of one person. If both spouses are eligible for catch-up contributions, they will need to open separate accounts to contribute the maximum amount.

Once a taxpayer reaches the age of 59 ½, distributions that are not used for qualified health expenses are no longer subject to the 10% penalty and instead are only taxed at ordinary income rates, making HSAs a popular supplemental retirement strategy.

Health Savings Account (Individual)

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•Contributions reduce taxable income
•Contributions reduce payroll tax liability
•Invested returns on the account are not taxed if used for eligible medical expenses
•Amounts contributed by employer is not taxable income


•Taxpayers must be enrolled in a high deductible health plan, which may ultimately increase annual health care costs
•The maximum contribution amount is not very high

Assumptions When Taking the Health Savings Account (Individual)

•Taxpayer will not make excess contributions to the HSA plan
•The taxpayer, spouse, or dependents are not enrolled in Medicare or any other non-high deductible insurance plan
•Married taxpayers will implement HSA in a manner to maximize savings

Requirements to Claim the Health Savings Account (Individual)

•The taxpayer must be enrolled in a High Deductible Health Plan (HDHP)
•Must make annual contributions, typically through payroll
•The taxpayer is eligible to make contributions
•Any dependents are eligible

Business Entities That Can Claim the Health Savings Account (Individual)


The material discussed on this page is meant for general illustration and/or informational purposes only and is not to be construed as investment, tax, or legal advice. You must exercise your own independent professional judgment, recognizing that advice should not be based on unreasonable factual or legal assumptions or unreasonably rely upon representations of the client or others. Further, any advice you provide in connection with tax return preparation must comply in full with the requirements of IRS Circular 230.

Prosperity Tax Advisors
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