For the 2025 U.S. federal tax year, an individual wants to establish and contribute to a Health Savings Account (HSA). Which requirement must be satisfied for the contributions to be permitted?
- The individual must have employer-sponsored health coverage of any kind, since HSAs are only available through employer group health plans
- The individual must be enrolled in Medicare, since HSAs are designed to supplement Medicare out-of-pocket costs
- The individual must be covered by a qualifying high-deductible health plan (HDHP) and have no other disqualifying health coverage
- The individual must itemize deductions on Schedule A in order to claim any tax benefit from HSA contributions
Why C? And why not the others?
Correct answer: C. The individual must be covered by a qualifying high-deductible health plan (HDHP) and have no other disqualifying health coverage
Under IRC Section 223, HSA eligibility requires that the individual be covered by a qualifying high-deductible health plan and have no other health coverage that would disqualify them, such as a general-purpose health FSA, a spouse's non-HDHP family coverage, or enrollment in Medicare; contributions made while eligible are deductible above the line, grow tax-free, and can be withdrawn tax-free for qualified medical expenses. The option requiring employer-sponsored coverage of any kind is wrong because HSAs are available to anyone enrolled in a qualifying HDHP, whether obtained through an employer or purchased individually on the marketplace, and ordinary employer coverage that is not a qualifying HDHP does not create HSA eligibility at all. The option requiring Medicare enrollment is wrong because enrolling in any part of Medicare actually disqualifies a person from making new HSA contributions, the opposite of what the option claims. The option requiring itemized deductions is wrong because the HSA deduction is an above-the-line adjustment to income, available to every eligible taxpayer regardless of whether they itemize deductions on Schedule A.
Source: IRS Publication 969 (2025), Health Savings Accounts and Other Tax-Favored Health Plans; IRS Rev. Proc. 2024-25 (2025 HSA limits)