Sponsors (2)
The bill expands and simplifies access to HSA tax advantages—helping more people save for and tap funds during leave—but does so at the cost of reduced federal revenue, potential insurance-market effects, and increased administrative and compliance challenges.
Millions of taxpayers — including low-income and middle-class families — may contribute to HSAs even if they aren't enrolled in high-deductible health plans, expanding access to tax-advantaged medical savings.
People taking family or medical leave can withdraw HSA funds tax-free during that leave, preserving more take-home pay while caregiving or recovering and reducing short-term financial strain.
Contribution mechanics are consolidated into a single annual dollar amount, simplifying calculations and reducing month-by-month tracking burdens for savers and HSA custodians.
Expanding tax-free HSA uses and eligibility is likely to reduce federal income tax receipts, which could increase deficits or shift tax burdens in the future.
Removing the HDHP requirement may weaken incentives to choose high-deductible plans, altering risk pools and potentially raising premiums for some consumers.
Moving to a single annual contribution limit could eliminate certain monthly/age/family-based mechanics (e.g., some catch-up or prorated rules), producing winners and losers depending on prior contribution patterns.
Based on analysis of 3 sections of legislative text.
Allows tax-free HSA withdrawals during FMLA-type leave, removes HDHP enrollment as a requirement for HSA contributions, and replaces monthly limits with a single annual contribution amount.
Official title: To amend the Internal Revenue Code of 1986 to allow for tax-advantaged distributions from health savings accounts during family or medical leave, and for other purposes.
Introduced January 3, 2025 by Andrew S. Biggs · Last progress January 3, 2025
Allows people to take tax-free distributions from Health Savings Accounts (HSAs) while on Family and Medical Leave Act (FMLA)-type leave, and removes the current rule that you must be enrolled in a high-deductible health plan (HDHP) to contribute to an HSA. It also simplifies contribution limits by replacing the month-by-month HDHP eligibility construct with a single annual dollar amount for HSA contributions. The changes apply to taxable years beginning after enactment.