Frequently Asked Questions

If I live in a state that has not harmonized its Health Savings Account (HSA) tax treatment with the federal government, what records do I need to keep in order to ensure that I can compute my federal and state taxes correctly?

In this situation, the HSA owner has significant record-keeping responsibilities. Record-keeping requirements would pertain to HSA contributions as well as the account's earnings, as the earnings would be considered state income tax. Qualified distributions would be tax-free since fund contributions have already been taxed at the state level. Tracking the income (e.g. interest, dividends, realized capital gains) that an account holder should report on a state tax return could prove challenging and is significantly affected by the reporting capabilities of the given financial institution. Generally, the HSA owner needs to keep a permanent record of: the deduction taken at the federal level for the HSA contribution; the amount of income generated during the course of a given year; the amount of income that has been reported each year for state income tax purposes.

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