20 Nov How does a Health Savings Account work?

Q. With health care costs going up, I decided to sign up for a health plan with my job that allows me to save pre-tax money to pay for medical bills. How do these plans work exactly?
— Hoping for savings

A. The deadlines to sign up for most employer plans have passed, or they’re coming quickly.

Many will offer a Health Savings Account, or HAS.

You and/or your employer contribute to the account, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.

He said your contributions are pre-tax similar to contributions made to a 401(k) plan, while your employer’s contributions are tax deductible to your employer.

“If you are not employed or the plan is not through an employer, your contributions are tax deductible even if you don’t itemize, Kiely said.

“The maximum contributions are $4,300 for a single person or $8,550 for a family,” he said. “If you are over 55 you can contribute an extra $1,000. Employer contributions go against the above maximums.”

The funds in the HAS grow tax-free, Kiely said.

“The funds can be used for Qualified Medical Expenses. Qualified Medical Expenses are those expenses that would qualify for the medical and dental deduction,” he said.

Distributions from HSAs are reported to you and the IRS on form 1099-SA, he said, adding that the distributions must be reported on your tax return. They are reported on form 1099-SA Worksheet. There is a box on this form that you must check to indicate that the distribution was used for Qualified Medical Expenses.

“If you don’t report these expenses on the worksheet or don’t check the box the IRS will bill you for additional tax and penalty,” he said.

For more information about Health Savings Account see IRS Publication 969.

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This story was originally published in November 2025.

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