HSA tax rules: contributions, withdrawals and state exceptions
A health savings account is the only account in the tax code that can be tax-free going in, while it grows, and coming out. Here is how the rules work, what the IRS limits are, and where states break from them.
General information, not tax advice. This guide explains how federal and state rules generally work. Your situation may differ; check the official source linked below or ask a tax professional before acting.
The triple tax advantage
- Contributions are deductible (or excluded from your pay if made through a cafeteria plan at work, which also skips Social Security and Medicare tax).
- Growth is tax-free. Interest, dividends and gains inside the HSA are not taxed each year.
- Withdrawals for qualified medical expenses are tax-free, at any age, including expenses you paid out of pocket in earlier years after the HSA was opened, as long as you kept records.
Our sister site YourBestSavings explains what an HSA is, compares HSA providers by rate and fees, and has an HSA tax benefits calculator and an HSA vs FSA comparison.
IRS limits
| 2026 | 2027 | |
|---|---|---|
| Contribution limit, self-only coverage | $4,400 | $4,500 |
| Contribution limit, family coverage | $8,750 | $9,000 |
| Catch-up contribution, age 55+ | $1,000 | $1,000 |
| HDHP minimum deductible (self / family) | $1,700 / $3,400 | $1,750 / $3,500 |
| HDHP out-of-pocket maximum (self / family) | $8,500 / $17,000 | $8,700 / $17,400 |
Sources: IRS Rev. Proc. 2025-19 and Rev. Proc. 2026-24. The catch-up amount is set by law and is not indexed.
To contribute you must be covered by a high-deductible health plan (HDHP) and have no other disqualifying coverage, not be enrolled in Medicare, and not be claimed as someone else's dependent. If you are eligible for only part of the year, the limit is generally prorated by month, unless you use the "last-month rule" and stay eligible through the following year. The One, Big, Beautiful Bill Act expanded eligibility beginning in 2026 (for example, for bronze and catastrophic Marketplace plans and certain direct primary care arrangements); IRS Notice 2026-5 explains the details.
Reporting: Forms 8889, 5498-SA and 1099-SA
- Form 8889 is filed with your return whenever there were contributions or distributions. It calculates your deduction and the taxable part of any distribution.
- Form 5498-SA from your HSA custodian shows contributions for the year (it often arrives in May, after the contribution deadline).
- Form 1099-SA shows distributions. Payroll contributions appear in box 12 of your W-2 with code W.
Withdrawals that are not for medical expenses
A distribution that is not used for qualified medical expenses is added to income. Before age 65 it also owes a 20% additional tax, unless you are disabled or the distribution is due to death. From age 65 on, the 20% additional tax no longer applies, so the HSA works like a traditional IRA for non-medical spending, and stays tax-free for medical costs (including Medicare premiums other than Medigap).
Excess contributions owe a 6% excise tax each year they stay in the account. You can avoid it by withdrawing the excess and its earnings by your filing deadline.
State exceptions: California and New Jersey
Most states with an income tax follow the federal treatment. Two do not:
- California does not recognize HSAs. Contributions are added back to state income (including employer contributions made through payroll), and interest, dividends and capital gains inside the HSA are taxed by California each year.
- New Jersey also does not allow the deduction, and taxes the account's earnings as they are earned.
Federal treatment is the same everywhere. If you live in one of these states, keep your custodian's year-end statements: Form 5498-SA and 1099-SA do not show the interest and dividends your state wants reported. An HSA that holds cash in a savings option earns interest that those states tax like bank interest.
Our Family return includes HSA reporting (Form 8889).
Frequently asked questions
What is the HSA contribution limit?
For 2026, $4,400 with self-only HDHP coverage or $8,750 with family coverage, plus $1,000 if you are 55 or older. For 2027, the IRS set $4,500 and $9,000. Employer contributions count toward the limit.
When is the deadline for HSA contributions?
You can contribute for a tax year until the regular filing deadline of the following year (usually April 15), not including extensions.
Are HSA withdrawals taxable?
Not if they pay or reimburse qualified medical expenses. Withdrawals for anything else are taxable income and, before age 65, also owe a 20% additional tax unless you are disabled. After 65, non-medical withdrawals are taxed like traditional IRA withdrawals with no 20% additional tax.
Which states tax HSA contributions?
California and New Jersey do not follow the federal HSA rules: contributions are not deductible on the state return and the account’s interest, dividends and gains are taxable by the state as earned. Every other state with an income tax generally follows the federal treatment.
Do I need to file Form 8889?
Yes, if you (or your employer) contributed to your HSA or you took a distribution during the year. Form 8889 reports contributions, computes your deduction, and shows how distributions were used.
Is HSA interest reported on a 1099-INT?
No. Interest and investment earnings inside an HSA are not reported each year for federal tax. Custodians send Form 5498-SA (contributions) and Form 1099-SA (distributions).
Official sources
- IRS Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans
- IRS Instructions for Form 8889
- IRS Rev. Proc. 2025-19 (2026 HSA limits)
- IRS Rev. Proc. 2026-24 (2027 HSA limits)
- IRS Notice 2026-5 (HSA changes under the One, Big, Beautiful Bill Act)
- California Franchise Tax Board
- New Jersey Division of Taxation
Related guides
- How savings and CD interest is taxed — Form 1099-INT, when interest counts as income, accrued interest on multi-year CDs, and the early-withdrawal penalty deduction.
- Treasury and I bond interest: state tax exemption — Why T-bill, note and I bond interest is free of state income tax while bank interest usually is not, with a state-by-state table.
- 529 plan tax rules — Tax-free withdrawals, Form 1099-Q, K-12 and credential expenses, Roth IRA rollovers, and state deductions.
- Bank bonuses and card rewards: what is taxable — Bank account bonuses (1099-INT or 1099-MISC) versus credit card rewards earned by spending (treated as rebates).
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