Don't Mess With Taxes

A health savings account, or HSA, helps high deductible health plan, or HDHP, enrollees cover their larger out-of-pocket medical costs. HDHP plan limits and HSA contribution amounts are adjusted annually for inflation. Here are the 2026 numbers.

Sometimes just searching for health insurance can send your blood pressure sky high. (Photo by Thirdman)

Health care is a major concern for most Americans. Not only do they want solid coverage for themselves and families, they want it at the most affordable price.

For many, the best option is a high deductible health plan, or HDHP.

HDHP, HSA costs and savings: A HDHP policy typically has lower monthly premiums than traditional plans, which is the main appeal for many.

Those lower monthly coverage costs are possible thanks to the high deductible amount that gives the plan its name. The deductible must be met through policy owners’ out-of-pocket payments for medical treatments before the plan’s coverage starts paying.

Those with few medical worries accept the risk of a higher deductible in exchange for the immediate cash-flow benefit of lower premiums. But just in case, lots of HDHP owners also opt for an associated health savings account, or HSA, to cover what medical expenses thy must meet under the policy’s deductible.

Not only does an HSA help cover those health care costs in a tax-favored way, it also offers other tax savings. Those tax benefits also mean that HDHPs and HSAs must meet Internal Revenue Service guidelines.

The deductible amount that qualifies for HDHP treatment, as well as how much you can put into an HSA, are adjusted annually for inflation. On May 1, the IRS issued Revenue Procedure 24-25 with those amounts for the 2026 tax year.

2026 high deductible limits: Every year, the IRS reviews HDHP and HSA guidelines and adjusts their numbers as needed.

In 2026, a medical insurance policy qualifies as a high-deductible plan if it has a minimum annual deductible of $1,700 for individual coverage. That's up a tad from $1,650 for 2025.

For family coverage, an HDHP next year has a deductible of $3,400 for family coverage, again up a bit from this year's $3,300 family deductible.

There also are annual inflation-adjusted limits on the maximum amount of out-of-pocket expenses associated with an HDHP. This includes deductibles, co-payments, and other amounts, but not the premiums you pay for the plan itself.

For 2026, these expenses cannot exceed $8,500 for self-only coverage, an increase from 2025's $8,300 limit. The limit for family plans is $17,000. That's a bump from the 2025 limit of $16,600 for family coverage.

The following table shows the HDHP amounts for current 2025 and upcoming 2026 tax years.

Essentially, a plan's deductible amount must be at least the amounts shown in the table.

HSA adjustments, too: Similar inflation changes are also ahead for the HSA that helps cover expenses that fall into the associated policy's high deductible.

For 2026, you can contribute up to $4,400 to an HSA if you have individual HDHP coverage. That's up from the 2025 tax year's $4,300 maximum HSA contribution.

Family HDHP coverage in 2026 will let you put up to $8,750 into the associated HSA. That is an increase from the current $8,550 family coverage HSA maximum.

Policy holders who are 55 or older by Dec. 31 can sock away an additional $1,000 for the tax year. Note that like other tax code catch-up provisions, the HSA additional contribution for older account owners is a flat one grand. It is not adjusted annually for inflation.

If you're married, have family HDHP coverage, and your spouse also will be 55 by the end of the year, he or she also can take advantage of the added $1,000 catch-up amount for his or her own separate HSA.

HRA inflation bump: The IRS announcement also notes an increase in 2026 for an excepted benefit HRA, the acronym for a health reimbursement arrangement.

The maximum HRA amount for 2026 is $2,200. That’s a slight increase from the 2025 HRA amount of $2,150.

HRAs are employer-funded medical plans whose funds are used to pay back, or reimburse, employees for qualified medical expenses. This includes vision, dental, prescription, and other types of benefits separate from their main company-provided health insurance plan.

The money that goes into an HRA is pre-tax, meaning the workers don't face any tax consequences on approved reimbursements. The business also is allowed to claim a tax deduction for these reimbursements.

However, unlike an HSA, an HRA is not portable. Workers cannot take HRA funds with them when they leave the job that offers the medical savings option.

Triple tax benefits for an HSA: Most of us tend to think short term when it comes to financial decisions. That's understandable, especially at times like these where money is tight for many of us.

That's why some HDHP enrollees ignore the benefit of opening an HSA.

Sure, that will give you more immediately available cash. But if you have a high deductible and a medical emergency pops up, which, let’s be honest, seems to always happen at the worst possible time, you'll be stuck covering all the deductible costs.

But if you have an HSA, not only will it help pay those unexpected deductibles, it also has three nice tax advantages.

First, the money you put into your HSA is tax free. Your contributions usually are made through salary deferral at your workplace, meaning your HSA amount is taken out of your paycheck before taxes are calculated. Plus, any employer contributions aren't included in your taxable income.

If you make HSA contributions directly, you deduct the amount you contribute when you file your taxes. This is what's known as an above-the-line deduction, meaning you don't have to itemize to make the medical claim. It’s claimed on line 13 of Form 1040 Schedule 1.

Second, the earnings on the money you contribute to your HSA grows tax-free. That's tax-free, not tax-deferred. Those earnings aren’t taxable income.

Third, when you use the HSA money to pay allowable out-of-pocket medical expenses, those withdrawals also are tax-free. This includes using HSA money for not just the usual, and many, IRS-approved medical costs we all tend to run up each year, but also to pay for treatments of chronic medical conditions.

OK, we are talking taxes, so there's a caveat.

Be careful when taking HSA distributions. Make sure to use the funds for allowable medical costs. If you're younger than 65 and spend HSA money on something that's not IRS approved, you'll owe a 20 percent penalty on that withdrawal.

Added HSA advantages: OK, those are the big three immediate tax savings from an HSA, but wait, there's more.

An HSA's year-end balance can be carried over from year to year. There's no use-it-or-lose-it threat as with a workplace flexible spending account, or FSA.

Your HSA is portable. It's not tied to your job, so if you change employers, you can take your HSA with you when you go to your new workplace.

Finally, if you have money in your HSA after you turn 65, you can use the funds without tax penalty for any reason. This 65+ withdrawal option means many folks essentially treat a well-funded HSA as another, de facto retirement account. And it's a nest egg without any government required minimum distributions (RMDs) to worry about when you hit your seventies. The current RMD age is 73. It goes to age 75 in 2033.

Of course, any medical coverage decision is based on many things, not just the tax implications.

But if tax savings are a component, do take them into account, along with all your (and covered family) health care and financial factors, so that you can find a policy that fits both your medical and fiscal needs.

That thorough evaluation might just show that an HDHP and HSA is the best health care coverage Rx.

You also might find these items of interest:

• IVF costs are tax deductible medical expenses
• Tracking, and maximizing, tax-deductible medical miles
• Inflation adjustments for 2025 to medical tax breaks could help you feel better

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