- A payroll-deducted contribution escapes Social Security and Medicare tax as well as income tax, which no other tax-advantaged account does.
- The contribution field is not clamped to a limit, because only the self-only figure is available here — use your plan’s or the IRS’s published family figure if you have family coverage.
- Paying current medical costs out of pocket and leaving the account invested is what turns a spending account into a retirement account.
- Withdrawals for qualified medical expenses are never taxed, at any age — the account only behaves like an ordinary retirement account when you use it for something else.
How the HSA calculator works
A health savings account is the only account in the US system where the money can avoid tax three separate times: going in, while it compounds, and coming out again for qualified medical costs. Every other tax-advantaged account gives up one of those three. This calculator prices the first of them precisely for your own income, shows the second as a projected balance, and takes the third as a rule rather than a number, because it depends entirely on what you eventually spend the money on.
The annual contribution is a free input rather than a hard ceiling, and that is deliberate. The self-only annual limit is shown in the side panel and is the only health savings account limit this site holds. The family-coverage limit and the additional catch-up available once you reach 55 are not in this repository, so rather than print an approximate figure the calculator does not clamp your entry at all — take the family number off your own plan documents or the IRS’s published table and type it in. A tool that silently reduced a family contribution to the self-only limit would be wrong in the least visible way possible.
The route matters as much as the amount. A contribution made through your employer’s cafeteria plan comes out of pay before Social Security and Medicare tax as well as before income tax. A contribution you make yourself from a bank account is deductible against income tax but not against payroll tax, and you claim it back on your return rather than never paying it. Same dollars into the same account, materially different cost, which is why the route is a toggle and the two savings are shown on separate lines.
The math
The income tax saving is your contribution multiplied by your marginal federal rate, and that rate is read off the bracket table by finite difference rather than by looking up a bracket index — bump gross income by a small amount, re-subtract the standard deduction, and see what the extra tax was. That technique stays correct when the standard deduction shields the next dollar entirely, where a naive bracket lookup would report a rate on income that is not being taxed at all.
The payroll saving, when you choose the payroll route, is your contribution multiplied by the combined employee-side Social Security and Medicare rate. That rate is read from the same constants the payroll calculator uses, not typed in again here, so the two pages can never disagree. Above the Social Security wage base the Social Security half no longer applies and this figure overstates the saving slightly; the Medicare half has no ceiling and applies at every income.
The projection runs the balance forward one year at a time. Each year the opening balance earns a full year of return and that year’s contribution earns roughly half a year, the mid-year convention, because contributions arrive across twelve pay periods rather than on January the first. Contributions stay flat in today’s dollars and the limit is not indexed forward, so read the return as a real, above-inflation figure to keep the projection internally consistent. Nothing here is withdrawn: the projection assumes you pay current medical costs out of pocket and leave the account invested, which is the strategy the three-way tax treatment rewards.
Worked example
Take the self-only limit of $4,400, a $90,000 salary filing single, and the payroll route. Your marginal federal rate is 22%, so the income tax saving is $968. The employee-side payroll rate of 7.65% saves another $337. Total cost of putting $4,400 into the account: about $3,095. That is a 29.65% discount on money you were going to spend on healthcare anyway.
Now leave it invested. At a 6% return over 25 years, contributing $4,400 every year produces a balance of roughly $248,600, of which $110,000 is contributions and about $138,600 is growth. The tax saved across those 25 years comes to roughly $32,600 on its own. Switch the route from payroll to direct and the annual saving drops from $1,305 to $968 — the balance is identical, but you paid about $8,400 more in payroll tax over the same period for exactly the same account.
Key terms
- High-deductible health plan
- The kind of health coverage you must be enrolled in to contribute at all. The deductible and out-of-pocket thresholds that define it are published annually by the IRS and are not modelled here.
- Cafeteria plan
- The employer arrangement that lets a contribution come out of your pay before tax is calculated. It is what makes the payroll route escape Social Security and Medicare tax.
- Qualified medical expense
- A cost the IRS lists as eligible, which a withdrawal can cover entirely tax-free. Withdrawals for anything else are taxed as income, with a penalty before a threshold age.
- Marginal rate
- The federal rate applied to your next dollar of income. It is what sets the value of a deduction, and it is usually well above your average rate.