What is the tax treatment of an eligible individual’s HSA contribution?
Contributions made by an eligible individual: HSA contributions made by an eligible individual or his or her family members are deductible by the eligible individual when determining his or her adjusted gross income. Contributions are deductible whether or not the eligible individual itemizes deductions.
NOTE: The individual cannot also deduct the contributions as medical expense deductions.
Employer contributions: HSA contributions made by an employer to employees’ HSAs may be deducted by the employer. These contributions are excluded from the employees’ gross income, are not subject to withholding for income tax, and are not subject to the Federal Insurance Contributions Act (FICA), the Federal Unemployment Tax Act (FUTA), or the Railroad Retirement Tax Act (RRTA).
NOTE: Contributions to an employee’s HSA through a cafeteria plan are treated as employer contributions. The employee cannot deduct employer contributions on his or her federal income tax return as HSA contributions or as medical expense deductions.
Tax-deferred earnings: Earnings on amounts in an HSA are tax-deferred and are not includable in gross income while held in the HSA.