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More People Can Save Taxes on Health Expenses With These Accounts Under the New Law

Oct 05, 2025 04:00:00 -0400 | #Taxes

A nurse from Bergen New Bridge Medical Center Hospital checks a patient in Paramus, N.J. (Kena Betancur / AFP / Getty Images)

Key Points

Far more Americans should use health savings accounts (HSAs) to shave their tax bills, and that will be especially true come Jan. 1.

These accounts will be available to roughly 10 million more Americans beginning in 2026—up from 38.8 million currently—under rule changes in the tax bill signed into law in July. HSAs have traditionally been available only to people who have high-deductible health insurance policies, most of which are offered through employers to payroll workers.

The tax bill not only broadens eligibility to people with certain insurance policies purchased through the Affordable Care Act’s health insurance marketplace, it also lifts eligibility restrictions on certain types of healthcare service structures.

HSAs give you a tax break on money you set aside for healthcare costs, and any money that goes unused for healthcare can be left in the account to grow tax deferred, much like in a 401(k).

This is the first time since HSAs were established in 2003 that eligibility requirements have substantially expanded, says Kevin Robertson, chief growth officer for HSA Bank.

“Estimates for how much an individual will need in retirement for healthcare are $150,000 to $250,000,” Robertson says. “HSAs are the most powerful way to pay for those expenses because of their tax advantages.”

HSA nuts and bolts

If you have access to an HSA through your employer, contributions can be made pretax through a payroll deduction.

If you don’t have an employer HSA, but are eligible to establish one, you can do so through a bank, financial services company or benefits administration firm, such as HSA Bank, Fidelity, HealthEquity or NueSynergy.

Directly owned HSAs are funded with after-tax dollars, but you can claim a tax deduction for the amount you contribute.

The maximum contribution to an HSA for this year is $4,300 for single coverage or $8,550 for family coverage. Next year, the limits rise to $4,400 and $8,750.

If you are 55 or older, you can contribute an additional $1,000 a year.

In some cases, employers contribute to HSAs on behalf of employees. Employer contributions count toward your annual maximum contribution.

Money in an HSA can be invested in a range of investment options curated by your provider, and your money grows tax-deferred.

You can take money out of your HSA tax-free if you use it for qualified medical expenses, such as doctor and hospital visits, vision and dental care, prescriptions and over-the-counter medications.

If you withdraw money for nonmedical expenses and you are under age 65, you will face a 20% penalty and income taxes on your withdrawal.

Once you are 65 or older, you can use your HSA like a 401(k): Tap it for any purpose, but withdrawals will be subject to income tax.

Contributions to HSAs for any calendar year can be made until the April 15 tax-filing deadline of the following year.

A high-deductible health plan in 2025 is defined as one with an annual deductible of at least $1,650 for individual coverage, and $3,300 for family coverage. Maximum out-of-pocket expenses for a high-deductible plan are $8,300 for individual coverage or $16,600 for family coverage. Next year, the threshold for deductibles rises to $1,700 for individual plans and $3,400 for family coverage. Maximum out-of-pocket limits will be $8,500 for individuals and $17,000 for families.

Optimize your HSA

If you have an HSA, but paid out of pocket for healthcare costs, you can reimburse yourself for those expenses with tax-free withdrawals from your account.

You can use this rule to optimize an HSA’s tax benefits, says Molly Ward, founder and advisor at Equitable’s Well Lived Wealth.

“Max out your HSA like your retirement account. When medical expenses come up, pay out of pocket so you can let your HSA assets grow tax deferred,” Ward says. “Later, you can reimburse yourself with tax-free withdrawals.”

The key: Be diligent about keeping healthcare receipts as proof in case the IRS comes knocking, she says.

What’s new for 2026

Starting next year, if you have a bronze or catastrophic health plan through the ACA marketplace, you are eligible for an HSA.

Of the 24 million people who enrolled in insurance through the ACA this year, about 30% enrolled in bronze plans and 0.23% in catastrophic plans, according to the Centers for Medicare and Medicaid Services.

Also new for 2026 is HSA eligibility for people who sign up for a direct primary care (DPC) arrangement with their physicians.

With DPCs, patients pay subscription-style fees for unlimited access to primary care, rather than a per-visit fee.

“The IRS deemed that if you participate in one of these it invalidates your ability to contribute to an HSA. That restriction has been removed,” Robertson says.

Some 5% of primary care physicians have moved to this model, Robertson say. Lastly, the tax bill enables HSA eligibility for people who use telehealth services. While a temporary law has been in place to this effect win recent years, the tax bill makes it permanent.

HSAs are underused

According to Gideon Lukens, a senior fellow at the Center for Budget and Policy Priorities, HSAs are vastly underused.

“Half of HSAs had a balance of less than $500 in 2024. One in five had a balance of zero dollars,” Lukens says.

While many eligible people may not be able to save more, there are also many who are simply unaware of HSAs’ rich benefits, Ward says. “Few people know how to optimize them.”

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