Intuit Academy Tax Practice Exam 2025 – 400 Free Practice Questions to Pass the Exam

Contributions to a Health Savings Account (HSA) are indeed tax-deductible, which means they can be subtracted from your gross income when calculating your taxable income. This deduction effectively reduces the amount of income that is subject to tax, potentially lowering your overall tax liability for the year. This feature is designed to encourage individuals to save for medical expenses, making HSAs a valuable tool for managing healthcare costs while also providing tax advantages.

It's important to recognize the benefits of this deduction: it not only reduces the amount of income tax owed for the year in which contributions are made but the funds in the HSA can also grow tax-free, and withdrawals for qualified medical expenses are not taxed either. This triple tax benefit—deduction upon contribution, tax-free growth, and tax-free withdrawals for qualified expenses—distinguishes HSAs from other savings or investment accounts.

In contrast, contributions that are taxed as ordinary income would not offer the same tax benefit and would not help in reducing taxable income. Having no impact on taxes contrasts with the clear financial benefits provided by HSAs. Finally, while there are penalties for withdrawals made for non-qualified expenses, this is not the primary consideration when examining the tax implications of contributions.