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What are Health Savings Account Contributions?

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  • Written By: Donn Saylor
  • Edited By: John Allen
  • Last Modified Date: 08 February 2020
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Health savings account contributions are deposits made to a medical savings account that are not subjected to federal taxes when the deposit is made. Health savings accounts are offered to taxpayers in the United States who are registered in a high deductible health plan, which is a health insurance option that has lower premiums than most other insurance plans, but also higher deductibles. Funds deposited into a health savings account carry over from year to year, distinguishing it from a flexible spending account where monies are not allowed to accumulate or rollover after a year.

In 2003, health savings accounts were enacted as part of the U.S.'s Medicare Prescription Drug, Improvement, and Modernization Act. An account is owned by an individual person, and that person may use any health savings account contributions to pay for medical expenses — as long as they fall within the parameters of the health savings account guidelines — without federal tax consequences or problems. Though the account is held by the individual, an employer may also offer health savings accounts to employees.

An employer is allowed to make health savings account contributions to its employees' accounts. The law stipulates that all employees must be treated equally and receive the same contribution, though it is admissible to make different contributions to full-time workers than to part-time workers. An employer is also allowed to make larger contributions to workers who are paid significantly less than to those who receive larger paychecks.

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There is a maximum amount of deposit for all health savings account contributions. These are gauged on a yearly basis and differ for singles and families. Any funds deposited to a health savings account in the course of a year are applied toward the annual maximum deposit, whether they come from an individual or an employer.

Health savings account contributions, or HSA contributions, are additionally permitted to be in the form of lump-sum deposits. These large deposits, however, cannot go over the maximum annual deposit amount. They also may not exempt an individual from meeting monthly contribution requirements as stipulated in the plan.

HSA contributions stay in an individual's account until they are withdrawn. The money and interest accumulate, tax-deferred, from year to year. As long as the contributions are used to pay medical or dental expenses, they are never taxed. If an individual needs to withdraw contributions they have made to the account for a purpose that is not medically related, the money is considered taxable income and incurs a tax penalty.

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