Treasury Department announces expanded HSA tax benefits under Trump law

The Treasury Department and the IRS released guidance earlier this month that outlines new tax benefits for Americans who own a health savings account (HSA) under the tax package that President Donald Trump and congressional Republicans enacted earlier this year.

The One Big Beautiful Bill Act (OBBBA), which the president signed into law in July, made changes to expand access to HSA eligibility.

The guidance broadens the ability of Americans enrolled in certain health insurance plans to contribute to HSAs, as well as the ability of HSA holders to use them to pay for certain healthcare services.

HSAs give participants a tax-free way to save and invest money to be used to pay for healthcare costs. They can get a tax deduction for contributions to HSAs, while money invested in an HSA can grow tax-free and account holders are able to make tax-free withdrawals for qualified medical expenses.

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OBBBA made permanent the ability to receive telehealth and other remote care services before meeting the deductible of a high-deductible health plan (HDHP) while remaining eligible to contribute to an HSA. This provision took effect for plan years starting on or after Jan. 1, 2025.

Starting next year, bronze and catastrophic plans available through a health insurance exchange are considered HSA-compatible, regardless of whether the plans satisfy the general definition of an HDHP.

That provision will expand the ability of people enrolled in HDHPs to contribute to HSA accounts, which they’ve generally been restricted from doing in the past. The Treasury and IRS notice clarifies that bronze and catastrophic plans don’t have to be purchased through an exchange to qualify for the new relief.

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Treasury and the IRS also expanded the ability of individuals enrolled in certain direct primary care (DPC) service arrangements to contribute to an HSA starting next year. They may also use HSA funds tax-free to pay DPC fees that arise periodically.

The latest HSA guidance comes as Congress failed to advance an extension of enhanced Obamacare subsidies that are due to expire at the end of this year. 

The expanded subsidies, which added to Obamacare’s refundable premium tax credits, were implemented during the COVID-19 pandemic and were later extended during the Biden administration.

Democrats are pushing for an extension of the plussed-up Obamacare subsidies, and some moderate Republicans joined a discharge petition that will force a vote on an extension when lawmakers return after the new year.

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Sens. Mike Crapo, R-Idaho, and Bill Cassidy, R-La., who lead the Senate’s Finance Committee and the Health, Education, Labor and Pensions (HELP) Committee, have introduced legislation that would take funds that were going to the expanded subsidies and instead put them into HSA accounts.

Participants between the ages of 18 and 49 would receive $1,000; while those between the ages of 50 and 64 would receive $1,500. 

A procedural vote in the Senate on the proposal failed, as did a procedural vote on a three-year extension of enhanced Obamacare subsidies that Democrats put forward.