HSA Tax Deduction

Did you know you don't have to be an employee to contribute to a Health Savings Account (HSA)? In 2018, self-employed individuals can contribute up to $3,450 ($6,900 if family) to their HSA, all of which could be tax-deductible on their Form 1040. To be eligible for the HSA deduction you must be covered by a high deductible health plan (HDHP) and not be covered under any non HDHP plan, you cannot be claimed as a dependent on someone else's return and you cannot be enrolled in Medicare. To take advantage of the HSA deduction you need to complete Form 8889 and then deduct qualifying amounts on Form 1040.


Tim is a self-employed physical therapist who was enrolled in a qualifying HDHP for himself for all 2018. He had no other insurance policies, was not enrolled in Medicare and cannot be claimed as a dependent on anyone else's tax return. During 2018 he contributed $3,000 to his HSA; he did not make any MSA contributions and since he is self-employed he did not receive any employer contributions. When Tim is ready to file is taxes, he would complete Form 8889 and then deduct the full $3,000 he contributed to his HSA on line 25 of his Schedule C. Tim would also be able to exclude the $3,000 of HSA contributions from his self-employment tax calculation.


Emily is an independent commercial real estate agent with a HSA. During 2018, Emily contributed $5,000 to her individual HSA, which is $1,550 above the IRS limit. If Emily does not withdraw her excess contribution (along with any earnings) before her tax return is due, her deduction would be limited to $3,450, she would need to include the excess contributions as part of her income and pay a 6% tax on the excess amount.


Phil is a self-employed writer who enrolled in a HDHP and opened a HSA on November 1, 2018. Since Phil was not an eligible individual for the entire year, his HSA contribution will be limited to $575 ($3,450 * 2/12).


Nicole is a sole proprietor graphic designer with a young daughter and husband. Nicole has a family HDHP and meets the requirements of an eligible individual, her husband does not have an HSA. Nicole was enrolled in her health plan for all of 2018 and made $6,900 of contributions. She did not make any contributions to an MSA and since she is self-employed, she had no employer contributions to her HSA. When Nicole and her husband prepare their 2018 their joint tax return, after completing Form 8889 they will be able to deduct the full $6,900 of contributions she made on line 25 of their Form 1040.


Tahin is a courier for taskrabbit with a solo HDHP and HSA. In addition to making the maximum contribution to his HSA, Tahin also paid premiums for a dental policy. In addition to deducting his HSA contributions, Tahin could also deduct his dental premiums as part of the self employed health insurance deduction. Note however that if dental insurance was not considered an allowed non HDHP plan, he would not be eligible to deduct his HSA contributions.


  • In 2018 you can contribute up to $3,450 to your HSA if it is only you who is covered under your HDHP and up to $6,900 if your family is covered as well (if you have family coverage, special rules apply to how much you and your spouse can each contribute). If you are over 55 at the end of the year, you can contribute up to $1,000 additional dollars. Your contribution limit should generally be reduced by amounts transferred from your IRA, contributed to a Medical Savings Account (MSA), or if applicable contributed from an employer (if excluded from income). Additionally, the amount you are allowed to contribute may be less than $3,450 or $6,900 if you were not an eligible individual for the entire year (refer to worksheet in Form 8889 instructions to determine deduction limit). If you contribute an amount in excess of the defined limits and do not withdraw it before your tax return is due your contribution and any earnings on it may be subject to a 6% tax.
  • In 2018 a high deductible health plan (HDHP) is a plan with an annual deductible of at least $1,350 for individual plans and $2,700 for family plans. Additionally, it is important to remember that if both you and your spouse have family coverage, for tax purposes your annual deductible will be the lower of the two plans (i.e. if your minimum deductible is $3,000 but your spouse's is $2,000, neither of you would qualify to deduct your HSA contributions since a $2,000 deductible would not be considered a HDHP).
  • Generally, to be eligible for an HSA you cannot be covered by any non HDHP, however, some exceptions apply. In addition to your HDHP, you are allowed to have additional health care coverage for accidents, prescription drugs, disability, long-term care, dental and preventive care, amongst other things. Refer to Publication 969 for additional information.
  • If you are self employed and make HSA contributions in addition to deducting your contributions on Form 1040, you can also exclude your contributions from your self employment tax calculation.
  • To claim the Health Savings Account deduction, first complete Form 8889 to calculate the amount of your deduction, then input the total from line 13 of Form 8889 on to line 25 of your Form 1040.
  • Health savings accounts and other tax favored health plans can be complicated. There are many details behind the high level information we have outlined on this page. Additionally, there are a number of topics we do not cover (including distributions). You should refer to IRS guidance and consult with your tax advisor for more information on how you can take advantage of the Health Savings Account deduction.

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