How to Put Money in an HSA Account
Learn the different ways to contribute to your HSA, ensure you stay within IRS limits, and manage your account effectively for future healthcare expenses.
A Health Savings Account (HSA) is a tax-advantaged way to save for medical expenses, but contributing correctly ensures you maximize benefits while staying within legal limits. Whether using employer-sponsored options or making personal deposits, understanding the process helps you make the most of your HSA.
Payroll Deductions
Contributing through payroll deductions maximizes tax benefits. When an employer offers this option, funds are taken from your paycheck before taxes, reducing taxable income and lowering federal, Social Security (6.2%), and Medicare (1.45%) taxes. This pre-tax advantage increases take-home pay compared to after-tax contributions.
Employers typically use a Section 125 cafeteria plan, allowing employees to allocate part of their salary to an HSA without payroll taxes. This structure provides a financial edge over direct contributions, which lower federal and state taxable income but remain subject to FICA taxes. Some employers also contribute to HSAs, either through matching contributions or fixed amounts, further enhancing the benefits.
Adjusting payroll contributions is usually done through an employer’s benefits portal or HR department. Many employers allow changes anytime, not just during open enrollment, giving employees flexibility to modify contributions based on medical expenses or financial needs.
Personal Bank Transfers
Depositing money via personal bank transfer offers flexibility in timing and amount. Account holders can transfer funds from a personal checking or savings account directly into their HSA as needed. Many HSA providers offer online and mobile options to facilitate transfers, and some allow automatic recurring deposits.
Unlike payroll deductions, personal transfers use post-tax dollars, but they still provide tax benefits. Contributions can be deducted when filing a federal tax return, reducing taxable income. This deduction applies even for those taking the standard deduction and is reported on IRS Form 8889 with Form 1040.
Bank transfers also let individuals contribute from tax refunds, bonuses, or unexpected income. While this flexibility is useful for managing cash flow, contributors should track deposits carefully to avoid exceeding IRS limits, as excess contributions may incur a 6% excise tax until withdrawn.
Checking Your Contribution Limits
Staying within HSA contribution limits is essential to avoid penalties. For 2024, the maximum contribution is $4,150 for individuals with self-only high-deductible health plans (HDHPs) and $8,300 for those with family coverage, including both personal and employer contributions. Individuals 55 and older can contribute an extra $1,000 as a catch-up contribution.
Contribution limits are calculated monthly based on HDHP coverage. The IRS allows those eligible on December 1 to contribute the full annual limit under the “last-month rule,” provided they maintain HDHP coverage through the next year. Failing to do so results in taxes and penalties on the excess amount.
Exceeding the limit incurs a 6% excise tax on the excess amount each year it remains in the account. To correct an overcontribution, excess funds must be withdrawn before the tax filing deadline, including extensions. Any earnings on that amount must also be removed to avoid additional taxation. Some HSA providers assist in identifying and withdrawing excess contributions, but individuals should monitor deposits to prevent issues.