Can Business Owners Contribute to an HSA?

Health Savings Accounts (HSAs) allow individuals with high-deductible health plans to save for medical expenses on a tax-advantaged basis. Business owners frequently inquire about their eligibility to contribute to an HSA, given their diverse business structures. Understanding the specific rules for different business types is important for maximizing HSA benefits.

General HSA Eligibility Requirements

To qualify for an HSA, an individual must be covered by a High-Deductible Health Plan (HDHP) and meet other criteria. For 2025, an HDHP has a minimum annual deductible of $1,650 for self-only coverage or $3,300 for family coverage. The plan’s out-of-pocket maximums, including deductibles, co-payments, and co-insurance but not premiums, cannot exceed $8,300 for self-only coverage or $16,600 for family coverage.

An individual generally cannot have other health coverage that is not an HDHP, with exceptions for specific disease policies or vision and dental plans. They also cannot be enrolled in Medicare or claimed as a dependent on someone else’s tax return. Meeting these eligibility requirements is a prerequisite for any individual to contribute to an HSA.

HSA Contributions for Business Owners by Entity Type

The method and tax treatment of HSA contributions for business owners can vary significantly depending on their business entity structure, assuming all general eligibility requirements are met.

Sole Proprietors

Sole proprietors, as self-employed individuals, contribute to an HSA personally. Their contributions are not made through a formal employer payroll system. Instead, these contributions are considered an “above-the-line” deduction on their personal tax return, specifically on Schedule 1 (Form 1040). This allows them to reduce their adjusted gross income, regardless of whether they itemize deductions.

Partners in a Partnership

Similar to sole proprietors, partners in a partnership are considered self-employed for tax purposes. Each partner contributes to an HSA individually, and these contributions are treated as an above-the-line deduction on their personal tax return. The partnership cannot make tax-deductible contributions to a partner’s HSA at the partnership level. Any funds provided by the partnership for HSA contributions are considered guaranteed payments or distributions, impacting the partner’s individual tax situation.

S Corporation Shareholders (Owners)

S corporation shareholders who are also employees of their S-corporation have more flexibility regarding HSA contributions. The S-corporation can make contributions directly to the shareholder-employee’s HSA, similar to how any other employer contributes for an employee. These employer contributions are deductible by the S-corporation as a business expense and are not considered taxable income to the shareholder-employee. Alternatively, the shareholder-employee can make individual contributions to their HSA, which would be an above-the-line deduction on their personal tax return.

C Corporation Owners (Employees)

C-corporation owners who are also employees of the corporation are treated the same as any other employee for HSA purposes. The C-corporation can make tax-deductible contributions to the owner-employee’s HSA. These employer contributions are excluded from the owner-employee’s taxable income. This arrangement provides a direct benefit to the owner-employee, as the corporation effectively covers a portion of their healthcare savings in a tax-efficient manner.

HSA Contribution Limits and Tax Treatment

Individuals eligible for an HSA can contribute up to specific limits each year, adjusted annually by the Internal Revenue Service (IRS). For 2025, the maximum annual contribution is $4,300 for self-only HDHP coverage and $8,550 for family HDHP coverage.

Individuals aged 55 and over can make an additional “catch-up” contribution of $1,000 annually. This means a person aged 55 or older with self-only coverage could contribute up to $5,300, and those with family coverage could contribute up to $9,550 in 2025. Contributions, whether made by the individual or an employer, are tax-deductible, with individual contributions reducing adjusted gross income.

HSAs offer a triple tax benefit. Funds within the HSA grow tax-free, meaning any interest or investment earnings are not subject to current taxation. Withdrawals are tax-free when used for qualified medical expenses, which encompass a broad range of healthcare costs. However, if withdrawals are made for non-qualified expenses before age 65, they are subject to income tax and a 20% penalty. After age 65, withdrawals for non-qualified expenses are taxed as ordinary income but are not subject to the penalty.