Many employers offer high-deductible health plans (HDHPs) to control premium costs, and then pair this coverage with health savings accounts (HSAs) to help employees with their health care expenses. An HSA is a tax-favored trust or account that can be contributed to by, or on behalf of, an eligible individual to pay qualified medical expenses.
HSAs provide a triple tax advantage—contributions, investment earnings and amounts distributed for qualified medical expenses are all exempt from federal income tax, FICA tax and most state income taxes. Due to an HSA’s potential tax savings, federal tax law imposes strict eligibility requirements for HSA contributions.
Only an eligible individual can establish an HSA and make HSA contributions (or have them made on his or her behalf). An individual’s HSA eligibility is determined monthly and, as a general rule, contributions can only be made for the months in which the individual satisfies all of the HSA eligibility criteria.
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