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HSA basic rules

7 basic rules of an HSA you need to know

November 16, 2023

Understanding the basic rules of a health savings account (HSA) is critical in driving employee participation. According to our recent participant survey, HSAs were one of the top three benefits they wanted more education on. And only half of those surveyed in our “Paying for Healthcare in America” report said that they understand the differences among the different health spending accounts. Let’s break down some of an HSA’s basic rules. 

If you’d like to learn more about how you can better support employees’ health and financial wellness needs, check out our content from HSA Day 2021 and watch our podcast episode from the event below. 

And don’t forget to check out our HSA Day 2022 and HSA Day 2023 podcast episodes to learn more about the value of HSAs.

Who is eligible for an HSA? 

IRS rules state that an individual must meet the following basic requirements in order to be eligible for an HSA: 

  • Be covered by an HSA-eligible health plan, otherwise known as a high-deductible health plan (HDHP). 
  • Not be covered by any other health plan that would disqualify them from an HSA (for example, a spouse’s plan or a medical flexible spending account). 
  • Not be enrolled in Medicare. 
  • Not be claimed as a dependent on someone else’s tax return. 

What expenses are eligible? 

Hundreds of expenses are considered eligible for HSA funds, including bandages, first-aid kits, and copays for medical, dental, or vision appointments. Check out our interactive eligible expense list or shop HSA-qualified products at HSA Store

What happens if funds are spent on ineligible expenses? 

Prior to age 65, if you spent HSA funds on an ineligible expense, you would pay income tax on your purchase and face a 20 percent tax penalty. Once you’re 65, you would no longer face a 20 percent tax penalty (although funds spent on ineligible expenses would be subject to income tax).

How much can a participant contribute to an HSA? 

The IRS sets contribution limits each year for HSAs. Check out our blog post to see what HSA contribution limits are. 

When can a participant invest their HSA funds?  

If an individual is participating in an HSA through their employer, the employer generally determines what a participant’s balance must be before they can invest their funds. That balance amount is referred to as the investment threshold. 

If an individual participates in an individual HSA, then the investment threshold is set by the HSA administrator. Refer to your account rules to learn your HSA’s investment threshold. In 2019, Devenir found that most HSA investment thresholds are between $1 and $1,000

Do all funds carry over? 

Yes. One of an HSA’s biggest perks is that all funds carry over from year to year regardless of whether an individual remains HSA-eligible, which makes these accounts ideal for investing and retirement planning

When can a participant change their HSA contribution amount?

HSA participants can change their contribution amounts at any time during the plan year. Participants should check with their employer if they want to do this through their payroll on a pre-tax basis. 

The information in this blog post is for educational purposes only. It is not legal, financial, or tax advice. For legal, financial, or tax advice, you should consult your own legal counsel, tax and investment advisers.

WEX receives compensation from some of the merchants identified in its blog posts. By linking to these products, WEX is not endorsing these products. 

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