A Health Savings Account (HSA) is a type of personal savings account set up to pay certain health care costs. An HSA allows employees to put money away and withdraw tax free, as long as the funds are used for qualified medical expenses. Employees must be covered by a certain high deductible health plan (HDHP) to contribute to an HSA. Employees can’t contribute to an HSA if they have Medicare coverage, or a plan that pays its share of a covered service without the employee having to pay deductibles or copayments first (called first dollar coverage).
HSAs are offered through a bank, insurance company, or other financial institution. The money contributed to the account isn’t taxed as long as it’s used for out-of-pocket medical costs, like qualified medical expenses and qualified long-term care services. In some cases, the money can be spent on similar medical costs for a spouse and/or dependents. The money rolls over year-to-year if not spent and is owned by the account holder.
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