Q: What is the tax treatment of contributions and investment earnings?

By December 2, 2009November 18th, 2015Frequently Asked Questions

A:  An individual’s contributions are deductible for federal income tax purposes, even if the account beneficiary does not itemize.

Employees’ contributions to an HSA are considered wages, and therefore are subject to FICA taxes. Self-employed individuals are not subject to FICA taxes, but pay self-employment tax instead. An HSA contribution does not reduce self-employment tax.

Employer contributions are made on a pre-tax basis and are not subject to employment taxes (e.g. FICA).

Investment earnings accumulate tax-deferred, and if used for qualified medical expenses are received federally income tax-free.