What is an HSA plan and how does it work?

• $4,500maximum 2027 HSA contribution for self only coverage, up from $4,400 in 2026, per the IRS
• $9,000maximum 2027 HSA contribution for family coverage, up from $8,750 in 2026
• Jan 1, 2026the date bronze and catastrophic plans became HSA compatible under the One, Big, Beautiful Bill Act

How an HSA plan works, step by step

There are two pieces. The first is the health plan itself, which has to meet the IRS definition of a high deductible health plan or, starting in 2026, be a bronze or catastrophic plan. The second is the health savings account, which you open at a bank or HSA custodian. The plan pays claims like any insurance. The account is your money to pay the bills the plan does not.

According to IRS Publication 969, the account gives you three tax breaks:

• Contributions are deductible even if you do not itemize.
• Earnings grow tax free while the money stays in the account.
• Withdrawals are tax free when you use them for qualified medical expenses.

The balance carries over every year and the account stays with you if you change plans or jobs. There is no use it or lose it rule. If you withdraw money for something other than medical costs, you owe income tax plus an extra 20 percent tax, unless you are 65 or older, disabled, or the withdrawal happens after death.

The IRS limits for 2026 and 2027

Sources: IRS Revenue Procedures 2025-19 and 2026-24. The deductible and out of pocket rows apply to traditional high deductible plans. Bronze and catastrophic plans qualify under the new rule even if they fall outside them.

The big change: bronze and catastrophic plans now count

For years, most marketplace bronze plans could not be paired with an HSA. Many covered doctor visits before the deductible, and many had out of pocket maximums above the IRS ceiling. The 2026 marketplace cap was $10,600, while the HSA plan limit was $8,500. So a lot of people on the cheapest plans could not use the best tax account for health costs.

The One, Big, Beautiful Bill Act changed that. The IRS confirmed that as of January 1, 2026, bronze and catastrophic plans are HSA compatible, whether or not they meet the usual high deductible plan definition. The IRS also says the plan does not have to be bought through the marketplace to qualify. Two related changes came with it. Telehealth before the deductible no longer breaks HSA eligibility, which the law made permanent, and people in certain direct primary care arrangements can now contribute to an HSA, with fees up to $150 a month for one person or $300 for more than one in 2027.

Catastrophic plans are normally for people under 30. For 2026, CMS also opened them through a hardship exemption to people whose income is too high or too low for a premium tax credit, and to people above 250 percent of poverty who do not qualify for cost sharing reductions.

Who an HSA plan fits

• Healthy people with some savings. You get a lower premium and a tax break on money you set aside for the deductible.
• Higher earners. The deduction is worth more in a higher tax bracket, and money you do not spend keeps growing tax free.
• People who want a cushion for a bad year. Building the balance up to your out of pocket maximum turns a scary deductible into a bill you have already saved for.

It fits less well if you have ongoing care and little cash. A plan with copays from day one may cost you less overall. My guide on how to pick a good deductible walks through that math, and bronze vs silver vs gold covers when a richer plan wins.

The self employed angle

If you work for yourself, an HSA can do double duty. You contribute directly and take the deduction on your own return, which lowers your adjusted gross income. The marketplace measures your income for premium tax credits using modified adjusted gross income, which starts from that same adjusted gross income. So an HSA contribution can lower the income the marketplace sees.

That matters more now. The enhanced tax credits expired at the end of 2025, so for 2027 coverage the credit generally stops at 400 percent of the poverty line, which is $63,840 for a single person and $132,000 for a family of four. Starting with 2026 coverage, there is also no cap on paying back excess credits at tax time. A self employed person projecting $66,000 who puts $4,500 into an HSA could land at $61,500, back under the line. Every situation is different, so run your own numbers with a tax professional, but this is one of the few legal levers that moves your subsidy.

More on this in my guide to self employed health insurance, and you can test different income numbers in my subsidy calculator.

Mistakes to avoid

• Assuming any plan with a big deductible qualifies. Outside bronze and catastrophic, a plan still has to meet the IRS high deductible rules. Silver and gold plans usually do not.
• Having other coverage. The IRS requires that you have no other disqualifying health coverage and are not claimed as a dependent on someone else's return.
• Going over the limit. Contributing more than the IRS limit can trigger an extra tax, so track what you put in.

I help people pick the plan side of this, and I can point you to the HSA eligible options in your area for free. For the tax side, your accountant is the right call.

Common questions