Health Savings Accounts
Health savings accounts are tax favored accounts that can be contributed to by or on behalf of "eligible individuals" covered by certain high deductible health plans (HDHPs) to pay for certain medical expenses of eligible individuals and their spouses and/or tax dependents.
An individual with a high deductible health plan (HDHP) can make contributions up to certain limits and get an "above the line" taxed deduction. This means that contributions reduce the individual's gross income before itemized or standard deductions are considered. Investment earnings on HSA funds are generally tax free. HSA funds withdrawn for qualified medical expenses escape federal taxation entirely.
Employers that contribute to HSA's or offer HSA's under a cafeteria plan get a federal tax deduction for those contributions. Employer contributions are treated as employer business expenses and are not includable in an employee's gross wages. These contributions are not subject to the normal payroll taxes such as FICA or FUTA.
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