Glossary

Health savings account (HSA)

A tax-advantaged personal account for medical costs that is open only to people enrolled in a qualifying high-deductible health plan.

Also called: HSA, health savings account, HDHP savings account

A health savings account is an individually owned account, created under IRC section 223, that holds pre-tax money for medical expenses. To contribute, you must be covered by a high-deductible health plan (HDHP) and generally have no other disqualifying coverage. Contributions are deductible (or pre-tax through payroll), growth is untaxed and qualified withdrawals are tax-free, which is why it is called triple tax-advantaged.

For 2026, the IRS limits contributions to $4,400 for self-only coverage and $8,750 for family coverage, with an extra $1,000 for people age 55 or older. An HDHP must have a deductible of at least $1,700 self-only or $3,400 family, and an out-of-pocket maximum of no more than $8,500 or $17,000 (Rev. Proc. 2025-19). Employer contributions count toward the limit. When made through a cafeteria plan, they escape payroll tax too.

The account belongs to the employee, goes with them when they leave, and balances carry over year to year. Withdrawals for non-medical purposes before age 65 are taxed and penalized by an additional 20%. Employers choosing between an HSA and an health reimbursement arrangement should weigh the plan design it requires, because the underlying plan must qualify. The guide on HDHPs and HSAs: an employer guide with 2026 limits covers contributions and compliance, and section 125 plan explains the payroll side.

Last reviewed October 10, 2026

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Related terms

Health reimbursement arrangement (HRA) An employer-funded plan that reimburses employees tax-free for medical expenses and, in some versions, individual health insurance premiums. QSEHRA An employer-funded account for businesses under 50 full-time equivalent employees that reimburses workers for premiums and medical costs up to an annual cap. ICHRA An employer-funded account that reimburses employees tax-free for individual health insurance premiums they buy themselves, with no federal dollar cap. Section 125 plan An employer cafeteria plan under IRC section 125 that lets employees pay for benefits such as health premiums with pre-tax pay instead of taxable cash.

Related guides

Building an employee benefits package that fits your budget How to build a benefits package in layers, what private employers actually offer per 2026 BLS data, and a budgeting worked example with 2026 FSA and HSA limits. Group health insurance for small businesses: how it works and what it costs How small-group health coverage is sold, rated and administered: eligibility, contribution rules, enrollment, plan options and the ACA rules that shape it. Why group health renewals rise and how to negotiate them What drives group health renewal increases in 2026 and 2027, with named cost projections, and a step-by-step plan to challenge, shop and restructure a renewal. HDHPs and HSAs: an employer guide with 2026 limits How HDHPs and health savings accounts work for employers: 2026 IRS limits, contribution and comparability rules, and a worked cost example. ICHRA explained: individual coverage HRAs for employers How an ICHRA works: tax treatment, employee classes, allowance rules, the affordability test (9.96% for 2026), ACA mandate treatment, notices and risks. Section 125 cafeteria plans: premium-only plans, FSAs and 2026 limits What a Section 125 cafeteria plan is, which benefits it can and cannot include, how elections and nondiscrimination work, and the 2026 IRS limits.