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

A Health Savings Account (HSA) contribution is classified as an above-the-line deduction. This means that it can be deducted from gross income, reducing the taxpayer's adjusted gross income (AGI) regardless of whether they choose to itemize deductions or take the standard deduction.

This feature is significant because it provides broad eligibility for taxpayers. By deducting HSA contributions above the line, individuals who contribute to an HSA can lower their taxable income, qualify for tax benefits, and enjoy tax-free growth on their investments within the account. Additionally, any funds withdrawn for qualified medical expenses are tax-free, further enhancing the overall tax advantage of utilizing an HSA. This differentiates the HSA contributions from itemized or standard deductions, which have limitations based on factors such as filing status and eligible expenses.