Tax Benefits #

Contributions to an HSA are pre-tax

This means the contribution are taken from your gross income, reducing your taxable income (i.e. you don’t pay federal income tax, Social Security, or Medicare taxes on HSA payroll contributions).

Any interest or investment earnings in the HSA are also tax-free.

Withdrawals are tax-free as long as they are used for qualified medical expenses. This triple tax advantage is unique to HSAs.

If you withdraw HSA money for non-medical purposes, you’d owe income tax and a 20% penalty (if under age 65).

After age 65, non-medical withdrawals are taxed as income but not penalized – essentially the HSA can act like a traditional retirement account if needed.