Do You Need Earned Income to Contribute to an HSA?

A Health Savings Account (HSA) provides a tax-advantaged way to save for qualified medical expenses. This type of savings account is designed to be paired with a high-deductible health plan (HDHP). Funds contributed to an HSA can be used for eligible healthcare costs, offering financial benefits for both immediate needs and future medical care.

Qualifying for an HSA

Establishing and contributing to an HSA requires meeting specific eligibility criteria. A primary requirement is coverage under a high-deductible health plan (HDHP), which must meet certain annual deductible and out-of-pocket maximum thresholds set by the Internal Revenue Service (IRS). Individuals cannot be enrolled in Medicare, nor can they be claimed as a dependent on someone else’s tax return. Having other non-HDHP health coverage disqualifies an individual from contributing.

Earned income is not a direct requirement for contributing to an HSA. Eligibility hinges on your health insurance coverage and other specific IRS criteria, not on your employment status or the source of your funds. Contributions can be made by individuals who are retired, have no income, or whose income is less than their contributions. Individuals with unearned income can still contribute to an HSA if they meet all other eligibility rules.

HSA Contribution Specifics

Various parties can contribute to an HSA, including the account holder, their employer, or other individuals like family members. The IRS sets annual contribution limits that vary based on whether an individual has self-only or family HDHP coverage. Individuals aged 55 and over are permitted to make an additional “catch-up” contribution annually.

Contributions made to an HSA offer tax advantages. Funds contributed through payroll deductions are pre-tax, reducing taxable income. If contributions are made directly by the account holder with post-tax dollars, these amounts are tax-deductible on their federal income tax return, even without itemizing deductions. Contributions to an HSA can originate from any source, including personal savings, investments, or gifts.

Managing Your HSA After Eligibility Changes

An individual may lose eligibility to contribute to an HSA under several circumstances. Reasons include changing from an HDHP to a different type of health plan, enrolling in Medicare, or being claimed as a dependent on another person’s tax return. While new contributions cannot be made once eligibility is lost, the funds already accumulated in the HSA remain available. The account itself does not expire and continues to belong to the individual.

Existing HSA funds can still be used for qualified medical expenses tax-free, even if the account holder is no longer eligible to contribute. If funds are withdrawn for non-qualified expenses before age 65, these distributions are subject to income tax and an additional 20% penalty. After age 65, withdrawals for non-qualified expenses are subject to income tax but are exempt from the 20% penalty.