Employee health savings accounts (HSAs): Maximizing tax benefits for 2025

It’s safe to say that the door to tax season is firmly open. One way benefits administrators can make tax season less stressful for their employees is to help them save a little money. One way to accomplish this goal is to educate them about their employee health savings account (HSA) options. 

HSAs offer employees a powerful way to save on healthcare costs while gaining tax advantages. Learn what health savings account tax benefits may be waiting for your employees.

How to maximize HSA tax benefits in 2025

Maximizing your Health Savings Account (HSA) in 2025 revolves around a strategic approach to contributions and expenditures. Here are some key ways to enhance your tax benefits:

• Utilize Increased Contribution Limits: For 2025, the IRS has increased the contribution limits. Ensure you contribute up to these new limits — $4,300 for self-only coverage and $8,550 for family coverage—to fully benefit from the available tax deductions. Catch-up contributions for people aged 55 and above remain at $1,000.

• Invest Your HSA Funds: Consider using your HSA funds as an investment vehicle. By allocating a portion of your HSA balance into mutual funds or other investment options offered by your HSA provider, you can potentially grow your savings tax-free over time.

• Save for Future Expenses: While using your HSA for immediate medical costs might be tempting, maximizing long-term tax advantages often involves paying out-of-pocket for current expenses when possible. This allows your HSA balance to grow and cover future healthcare needs using tax-free withdrawals.

Health savings account FAQs

Understanding how HSAs work can help you educate employees on HSA benefits. 

What is a health savings account?

A health savings account is a type of savings account where you can stash and grow funds for qualified medical expenses. You contribute untaxed income to your HSA and can use that money to cover costs like copayments, deductibles, and coinsurance. You can’t make premium payments with these funds. It’s only possible to contribute to an HSA if you can access an HSA-eligible plan. 

HSAs also offer growth opportunities. You can potentially earn interest on your deposits and won’t have to pay tax on those earnings. (Healthcare.gov)

What are the tax benefits of a health savings account?

HSAs offer two major tax benefits to account holders:

1. You contribute pre-tax income, or your contributions become tax-deductible

2. Any income earned through the HSA is not eligible for federal taxes if the account holder uses the withdrawals on qualified medical expenses (Merrill)

How much can you put in a health savings account per year?

Regarding contributions, how much money someone can contribute to an HSA varies by year. The 2025 HSA contribution limits are as follows:

• $4,300 for self-only coverage

• $8,550 for family coverage

• Additional $1,000 catch-up contribution for those 55 and older (Fidelity)

What are qualified medical expenses?

Any time you use a distribution from your HSA to cover a qualified out-of-pocket medical expense, you won’t have to worry about paying taxes on that money. You may even be able to use these funds to pay for qualified medical expenses for a spouse or dependent. Some examples of qualified medical expenses include:

• Acupuncture

• Ambulance transportation

• Office visits

• Prescriptions

• Psychological care

• Medical devices (CMS.gov)

Where can I open an HSA?

HSAs are widely available. Many financial institutions like banks and credit unions offer this type of savings account. Small businesses can purchase HSA-eligible plans through the Health Insurance Marketplace® or Small Business Health Options Program (SHOP) and from providers outside of the Marketplace. (CMS.gov)

Do my HSA funds expire?

One of the main advantages of HSAs is that your contributions don’t expire. This means you won’t lose a penny if you don’t use all your contributions in the calendar year you made them. This flexibility allows you to use the funds on routine care or preventative care or to save the funds for another year when you anticipate having more medical expenses. 

Even if you leave your job, you keep your HSA contributions. You can also designate a beneficiary to whom you can pass those funds. (Bank of America)

How does investing in an HSA work?

Investing in an HSA can turn it into a powerful tool for growing your healthcare savings over time. Some HSAs act purely as savings accounts, while others let you invest your contributions in options like mutual funds or other securities (this comes with risk but offers the potential for higher returns). Before investing your HSA funds, consider your goals. If you’ll need the funds soon for everyday medical expenses, keeping them in cash or low-risk, easily accessible options may be best.

Long-term investments like mutual funds might be more suitable if you plan to save for future healthcare needs. Remember that many HSA providers require you to maintain a minimum balance in your account before you can start investing, and you may need to leave a portion of your funds as cash. While investments can grow tax-free if used for qualified medical expenses, they also come with risks, including the possibility of losing money. (Merrill)

How Employers Can Support Employees with HSAs

Employers play a pivotal role in helping employees maximize the benefits of their HSAs. Here is how you can support your hardworking staff as they pursue their financial and wellness goals.

• Provide education opportunities. Offer clear, engaging materials explaining how HSAs work, including the tax advantages, rollover features, and their role in saving for future medical expenses. Workshops or webinars during open enrollment periods can help employees understand how to estimate their annual contributions and use tools like expense trackers or calculators to align savings with anticipated healthcare needs.

• Link HSAs to retirement planning. By highlighting their potential impact on retirement planning, you can promote using HSAs as part of long-term financial wellness. This includes discussing the advantages of investing in HSA funds once a certain balance is met, allowing employees to grow tax-free savings. 

• Match contributions. One way to excite employees about HSA opportunities is to offer seed contributions or matching funds. These generous offers incentive employees to contribute regularly.

• Integrate HSAs into broader benefits communication. Pairing them with high-deductible health plans (HDHPs) and explaining how they complement Flexible Spending Accounts (FSAs) helps employees see how an HSA fits into a comprehensive healthcare strategy.

Book a free demo with Thatch today for more personalized insight into how you can best support your employees. We’ll work with you to provide better, more flexible healthcare to all of your employees.