Health Savings Account Blog

A majority of states give a tax deduction for contributions to Health Savings Accounts. This is in line with the federal government, which also provides federal income tax deductions for any contributions made to an HSA.

Under the original legislation, contributions to HSAs by employers and employees would not have been taxable for state income tax purposes. Unfortunately, under pressure and threat of veto from the Rendell administration, the tax exclusion language for contributions was stripped from the bill immediately prior to its passage.

The Pennsylvania Chamber of Business and Industry expressed disappointment that important state tax exclusions were eliminated from the health savings account bill signed into law by Gov. Ed Rendell. "While we note that the concerns of insurance companies have been addressed by ensuring compliance with the federal health savings account law, we are extremely disappointed that the small business community's needs were ignored," said Jim Welty, PA Chamber vice president of legislative and corporate affairs.

"The new law provides insurers assurance that Pennsylvania's law adheres to federal requirements for health savings accounts, but unlike a majority of other states, it provides virtually no tax incentive at the state level," said Welty, adding that the savings from tax-free interest that can be earned is negligible compared to tax savings that could have been realized had the contribution exemption remained in the measure.

Welty said the PA Chamber is committed to ensuring that contributions to HSAs are excluded from state income tax, as they are treated for federal tax purposes, and will make the issue a priority this fall.

By offering a tax incentive, the federal government and most states are encouraging people to take more responsibility for their health, and their healthcare decisions. As more and more people open Health Savings Accounts, the medical community will feel the impact of consumers who are now more concerned with how their healthcare dollars are spent, and who are shopping before they buy.

Governor Rendell apparently thinks citizens of Pennsylvania who open Health Savings Accounts should pay higher taxes on their contributions than the citizens of at least 42 other states do.