What type of deduction is a contribution to a Health Savings Account (HSA)?

A contribution to a Health Savings Account (HSA) is classified as an above-the-line deduction. This means that it can be deducted from gross income to arrive at the adjusted gross income (AGI), regardless of whether the taxpayer takes the standard deduction or itemizes deductions.

Above-the-line deductions, including HSA contributions, provide taxpayers with the advantage of reducing their taxable income, thereby potentially lowering their overall tax liability. These deductions help in determining the AGI, which is a key figure in various aspects of the tax return, including eligibility for certain other deductions and credits.

This classification as an above-the-line deduction distinguishes it from standard or itemized deductions, which are taken after calculating AGI. A personal deduction typically refers to the exemptions that used to be available to taxpayers for themselves and their dependents but are no longer available under the tax rules.

By understanding that HSA contributions are above-the-line deductions, taxpayers can effectively plan their contributions and maximize their tax benefits.