Free Coronavirus Testing and Treatment Won't Affect HSA Deduction

Anyone with a high-deductible health plan that covers medical expenses related to COVID-19 before plan deductibles have been met can still contribute to a health savings account.

(Image credit: Javier Zayas (Javier Zayas (Photographer) - [None])

The IRS announced (opens in new tab) that high-deductible health plans (HDHPs) can pay for coronavirus (COVID-19) testing and treatment without jeopardizing their status as an HDHP. This also means that anyone with an HDHP that covers these costs before plan deductibles have been met can still contribute to a health savings account (HSA) and deduct those contributions on next year's tax return.

One of the many advantages of HSAs is that you can deduct your contributions to the account—even if you don't itemize (although there are limits to how much you can contribute each year). However, in order to contribute to an HSA, you must also be covered under an HDHP.

A health plan must satisfy many requirements to be considered an HDHP. For instance, it must have a minimum annual deductible. An HDHP may, however, provide preventive care benefits without a deductible or with a deductible that is less than the minimum amount.

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Under normal conditions, providing non-preventive health benefits without a deductible, or with a deductible below the minimum, would nullify a health plan's status as an HDHP. However, the IRS is disregarding this rule to eliminate potential administrative and financial barriers to testing for and treatment of COVID-19. The IRS also noted that, as always, any vaccination costs count as preventive care and can be paid for by an HDHP.

Rocky Mengle
Senior Tax Editor, Kiplinger.com

Rocky is a Senior Tax Editor for Kiplinger with more than 20 years of experience covering federal and state tax developments. Before coming to Kiplinger, he worked for Wolters Kluwer Tax & Accounting and Kleinrock Publishing, where he provided breaking news and guidance for CPAs, tax attorneys, and other tax professionals. He has also been quoted as an expert by USA Today, Forbes, U.S. News & World Report, Reuters, Accounting Today, and other media outlets. Rocky has a law degree from the University of Connecticut and a B.A. in History from Salisbury University.