What are the tax implications of participating in an HSA?

The money saved in an HSA is tax-free if it is used to pay for qualified medical expenses. The money contributed isn’t taxed nor are the earnings taxed as the HSA balance grows. As long as an individual uses the money to pay for qualified expenses, they won’t pay taxes when they withdraw funds either.

Note: States can choose to follow the federal tax treatment guidelines for HSAs or establish their own; some states tax HSA contributions. If an individual has questions about their tax implications, they should consult their tax adviser.