Video: Health Savings Account, How It Works

A Health Savings Account (HSA) is a tax-advantaged account under Internal Revenue Code Section 223 that employees use to pay for eligible medical expenses. It’s paired with an HSA-eligible high-deductible health plan (HDHP), and the employee owns the account. Employers can offer HSA contributions through payroll, and Northwest Group Services (NWGS), a licensed TPA, handles the administration, card support, and member service.

How It Works

• The employee enrolls in an HSA-eligible high-deductible health plan.
• Contributions go into the employee’s HSA through pretax payroll deductions, and employers can contribute too.
• Money in the HSA is available as it’s deposited. Card payments are limited to the current account balance.
• The NWGS Flex card is how members pay for eligible expenses. HSAs are card-only, with no claim form.
• Unused money rolls over every year. There’s no use-it-or-lose-it rule.

Who Can Contribute

To contribute to an HSA, an employee must:

• Be covered by an HSA-eligible HDHP on the first day of the month
• Have no other disqualifying health coverage, such as a general-purpose Health Care FSA (a limited-purpose FSA for dental and vision is allowed)
• Not be enrolled in Medicare
• Not be claimed as a dependent on someone else’s tax return

2026 HDHP Requirements

	Self-only coverage	Family coverage
Minimum annual deductible	$1,700	$3,400
Maximum out-of-pocket (deductibles, copays, and other amounts, not premiums)	$8,500	$17,000

2026 IRS Contribution Limits

• Self-only coverage: $4,400 per year
• Family coverage: $8,750 per year
• Age 55 or older: an extra $1,000 catch-up contribution

The limits include both employer and employee contributions.

A Triple Tax Advantage

• Goes in pretax. Payroll contributions are pretax, and contributions an employee makes on their own are tax-deductible.
• Grows tax-free. Interest and other earnings in the account aren’t taxed.
• Comes out tax-free when used for eligible medical expenses.

Withdrawals for anything else are taxable, plus an additional 20% tax before age 65. These are federal rules; some states tax HSAs differently.

The Employee’s Money

• Rolls over. Unused money stays in the account from year to year.
• Owned by the employee. The HSA belongs to the employee, not the employer.
• Portable. The account stays with the employee if they change jobs, change health plans, or retire.

What’s Eligible

HSA money can be used for qualified medical expenses for the employee, their spouse, and their tax dependents, including:

• Deductibles, copays, and coinsurance
• Prescription medicines
• Dental treatment
• Vision care, including eyeglasses and contact lenses
• Over-the-counter medicines, with or without a prescription
• Menstrual care products

What’s Not Eligible

• Health insurance premiums, with limited exceptions such as COBRA coverage, qualified long-term care insurance, coverage while receiving unemployment, and Medicare premiums at age 65 or older (other than Medicare supplement policies)
• Cosmetic procedures
• Items for general health, such as gym or health club dues

See IRS Publications 969 and 502 for the full rules.

Paying With Your HSA

The NWGS Flex card is the way to pay for eligible expenses from your HSA. Use it at eligible medical providers and pharmacies, up to the money that’s been deposited in your account. There’s no claim form for an HSA.

Keep your receipts. You’ll need them for your tax records and in case documentation is ever requested. You can check your balance and transactions in the member portal or the NWGS Flex Mobile app.

For Employers

• Pretax payroll contributions aren’t subject to FICA taxes, so both you and your employees save on payroll taxes.
• Employer contributions are a tax-free benefit for employees, up to the IRS limit.
• NWGS handles plan administration, card support, and member questions, so your HR team doesn’t have to.
• Members manage their accounts themselves through the member portal and the NWGS Flex Mobile app.

Questions? Call NWGS at (888) 808-3008, or write to NWGS, 8245 Farnsworth Road, Suite B, Waterville, Ohio 43566.

Frequently Asked Questions

Can I have an HSA and an FSA at the same time?

Only if the FSA is a Limited-Purpose Health FSA (dental and vision) or a Post-Deductible FSA. A general-purpose Health FSA, including your spouse's, counts as other health coverage and makes you ineligible to contribute to an HSA.

What happens to my HSA when I turn 65 or enroll in Medicare?

Once you're enrolled in Medicare, you can no longer contribute to an HSA, but you can keep using the money. After 65, withdrawals for non-medical expenses are taxed as income but no longer face the additional 20% tax, and the account can pay certain Medicare premiums.

What happens if I start an HDHP partway through the year?

Your contribution limit is generally prorated by the months you were eligible. Under the "last-month rule," if you're eligible on December 1 you can contribute the full annual amount, but you must stay eligible through the following year (the testing period) or part of it becomes taxable.

What's the deadline to make HSA contributions for a year?

You can make contributions for a tax year up until your tax-filing deadline, generally April 15 of the following year (not including extensions). Contributions through payroll follow your employer's schedule.

What happens if I contribute more than the limit?

Excess contributions are subject to a 6% excise tax each year they remain in the account. You can avoid the tax by withdrawing the excess and any earnings on it before your tax-filing deadline.

Can I use my HSA for my spouse or kids if they're not on my health plan?

Yes. HSA money can pay qualified medical expenses for your spouse and tax dependents even if they aren't covered by your HDHP. Note that the age 27 rule for FSAs doesn't apply to HSAs; a child must be your tax dependent.

Do I have to report my HSA on my tax return?

Yes. Anyone with HSA contributions or distributions in a year files Form 8889 with their federal return. You'll receive Form 5498-SA for contributions and Form 1099-SA for distributions.

Watch the HSA video above to see how it works, or call NWGS at (888) 808-3008.

Sources

• IRS Publication 969: Health Savings Accounts and Other Tax-Favored Health Plans
• IRS: About Form 8889, Health Savings Accounts

General information only; not tax or legal advice.

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