Health Savings Account (HSA) Contributions refer to the deposits made into a Health Savings Account, which is a tax-advantaged savings account designed for individuals with high-deductible health plans (HDHPs) to save for medical expenses.
Contributions to an HSA can be made by the account holder, their employer, or both, and the amounts are subject to annual limits set by the IRS. These contributions are tax-deductible, meaning they can reduce taxable income, and the funds grow tax-free. Withdrawals for qualified medical expenses are also tax-free, making HSAs a useful tool for both saving for future medical costs and reducing tax liability.
For example, if an individual contributes $3,000 to their HSA in a given tax year, this amount can be deducted from their taxable income, providing immediate tax benefits while also allowing the funds to be used later for out-of-pocket medical expenses without incurring taxes on the withdrawals.