HSA Contribution Limits for 2026

The IRS recently announced the updated Health Savings Account (HSA) contribution limits for 2026 along with the adjusted limits for corresponding High-Deductible Health Plans (HDHPs).

The annual deduction limit on HSA contributions for a person with self-only coverage under a High-Deductible Health Plan for calendar year 2026 is $4,400 (up from $4,300), and a $8,750 (up from $8,550) annual deduction limit for a person with family coverage in a HDHP.

What is an HSA?

As explained by the IRS, a Health Savings Account (HSA) is a tax-advantaged trust or custodial account you set up with a qualified HSA trustee to pay or provide reimbursement for certain medical expenses you incur. In other words, the HSA was designed to pay for day-to-day medical costs via HSA funds that an individual or family member may incur while remaining tax-free.

The account is owned by the employee and money is deposited directly into the individual's account.

Employees may make contributions in the form of lump sum contributions or pre-tax payroll deductions. An employer may also contribute to the account.

As soon as funds accumulate, they are available. This differs from a health flexible spending account (FSA) that has uniform coverage, in which the full balance is available on the first day of the plan year.

HSA Tax Penalties

HSAs offer numerous tax benefits, but it's important to understand the potential tax penalties associated with these accounts.

• One such penalty applies to excess contributions, which are contributions made above the annual contribution limit. If employees contribute more than the allowable limit, you will be subject to a 6% excise tax on the excess amount. Additionally, any excess contributions made are considered taxable income in the year they are made.

• Another tax penalty pertaining to HSAs relates to using the funds for ineligible expenses. Using HSA funds for non-qualified expenses before the age of 65 will lead to a 20% penalty on the amount used for such expenses. This penalty is in addition to any income tax owed on the withdrawn amount. After the age of 65, the penalty for using HSA funds for ineligible expenses is reduced to the ordinary income tax rate. However, it's essential to note that even after the age of 65, using HSA funds for ineligible expenses will still result in taxable income.

TIP: Educate your employees to keep track of contributions to avoid exceeding the limit and incurring these penalties.

Annual Contribution Limits for 2025 & 2026

It's never too early to start thinking about future medical expenses, tax saving opportunities, and saving for retirement.

Remember, HSA contributions may be made through pre-tax salary reductions and/or on a post-tax basis, up to the maximum limit for that year. Post-tax contributions may be made up until the date an individual's taxes are due.

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