How it works
A health savings account pairs with a high-deductible health plan. Money goes in before tax, grows without tax if you invest it, and comes out tax-free for qualified medical costs: three tax breaks in one account. Through payroll, contributions also skip the 7.65% Social Security and Medicare tax, which a deduction on your return doesn't.
Tax saved = contribution × (federal bracket + state rate + 7.65% if through payroll)
Worked example
Someone in the 22% bracket with a 5% state tax puts the 2027 self-only maximum, $4,500, into an HSA through payroll. They save $1,559 in tax: $990 federal, $225 state and $344 of Social Security and Medicare. Paying in on their own instead would save $1,215.
Invested at 6% and left alone for 20 years, the same yearly amount grows to about $170,039. A family plan in 2027 allows $9,000; with $1,000 from the employer, that leaves room for $8,000 more.
Things to know
- You need an HSA-eligible plan. Usually a high-deductible plan that meets the limits above, with no other health coverage and no Medicare. From 2026, bronze and catastrophic plans count as HSA-compatible too. Choosing at open enrollment? The HDHP vs PPO calculator compares the yearly cost of both plans.
- The limit is shared. Employer contributions count toward it, and if you change coverage mid-year the limit is generally prorated by month.
- Spending it. Qualified medical costs come out tax-free. Anything else is taxed, plus a 20% penalty before 65; after 65, only income tax.
- HSA vs FSA. Unlike a flexible spending account, nothing expires at year end, and the HSA stays with you if you change jobs. An FSA works with most employer plans but is mostly use-it-or-lose-it; the FSA calculator shows how much to put in.
- Invest it for the long run. Many providers let you invest the balance above a cash cushion. Fees vary a lot, so compare before you choose.
- This is an estimate, not tax advice. It uses your top bracket for the whole contribution. For other tax-advantaged savings, see the 401(k) and Roth IRA calculators.
Questions people ask
What is the HSA limit for 2027?
$4,500 for self-only coverage and $9,000 for family coverage, plus $1,000 if you're 55 or older, according to IRS Rev. Proc. 2026-24. For 2026 it's $4,400 and $8,750.
Is an HSA better than a 401(k)?
Many people take the employer's 401(k) match first, then fund the HSA, because it's the only account that can be tax-free going in and coming out. After that, it depends on your plans for the money.
Can I contribute for last year?
Yes. You can make contributions for a tax year until that year's filing deadline, so 2026 contributions are allowed until April 15, 2027. Payroll contributions count for the year they're taken from your pay.
Sources
- IRS: Rev. Proc. 2026-24 (2027 HSA limits and high-deductible plan thresholds)
- IRS: Rev. Proc. 2025-19 (2026 HSA limits and high-deductible plan thresholds)
- IRS: Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans
- IRS: guidance on new HSA rules under the One, Big, Beautiful Bill (IR-2025-119)
Reviewed September 29, 2026 by The Dollars World team. How we build and check our calculators · Our data and formulas. This is general information, not financial advice.