A Health Savings Account (HSA) is a tax-advantaged savings account designed to help individuals pay for qualified medical expenses. HSAs are typically paired with high-deductible health plans (HDHPs) and offer several tax benefits, including tax-deductible contributions, tax-free growth of earnings, and tax-free withdrawals for eligible medical expenses.
For example, if an employee has an HSA and contributes $3,000 to it annually, they can use those funds to pay for out-of-pocket medical costs such as prescription medications, doctor visits, and certain medical treatments. Contributions to an HSA are deductible from taxable income, reducing the overall tax burden, and the funds can be rolled over year to year, accumulating savings for future medical needs.
Related Terms:
Flexible Spending Account (FSA)
