Sponsors (2)
The bill tightens and clarifies HSA rules and increases fee/yield transparency—reducing misuse and improving oversight—but does so at the cost of reduced flexibility for some patients, higher taxes or lost benefits for certain account holders, and notable compliance burdens that may be passed to consumers.
Taxpayers and tax administrators get a clearer default rule that references to 'a section or other provision' will be treated as references to the Internal Revenue Code, reducing ambiguity in statutory interpretation and promoting consistent implementation.
HSA funds are more likely to be used for genuine medical expenses—through narrowed exceptions, substantiation and trustee verification, caps on certain consumer items, and reimbursement timing limits—helping preserve HSA tax preferences and reduce improper tax-free withdrawals.
Middle- and lower-income taxpayers (below the MAGI thresholds) retain full HSA deductions, preserving tax-preferred saving for health expenses for those taxpayers.
Many HSA account holders—including those who relied on prior exceptions, higher-earners subject to new MAGI limits, people who delay reimbursements beyond the new two-year window, and those who buy higher-cost therapeutic equipment—will face higher taxes, lost deductions, or denied tax-favored treatment, increasing out-of-pocket costs.
Trustees, financial institutions, employers, payroll administrators, and HSA administrators will incur substantial compliance and administrative costs (for substantiation systems, reporting fees/yields, payroll changes), costs likely passed through to consumers as higher fees or reduced product options.
Reduced flexibility and narrower allowable expenses will harm patients with chronic conditions or disabilities who rely on certain therapies, spa-like treatments, telehealth documentation, or more expensive prescribed equipment, making care costlier or harder to obtain using HSA funds.
Based on analysis of 8 sections of legislative text.
Tightens tax rules for HSAs: adds an income-based deduction phaseout, limits reimbursement timing and substantiation, excludes some expenses, and imposes trustee fee reporting and yield disclosures.
Introduced November 20, 2025 by Lloyd Alton Doggett · Last progress November 20, 2025
Rewrites several tax rules for Health Savings Accounts (HSAs) to tighten tax benefits, add new documentation and timing limits for reimbursements, require trustees to report fees and disclose account yields, and clarify payroll-tax treatment of certain employer HSA payments. Most of the changes take effect for taxable years or payments after December 31, 2025. Key changes include an income-based phaseout of the HSA contribution deduction, a two-year limit on reimbursing past medical expenses, new substantiation and provider-opinion rules, explicit non-covered expense categories (spa/beauty and most exercise equipment over $500/year), trustee reporting of fees, and yield disclosures on HSA information returns.