New HSA Opportunities for Expats: Major 2026 Changes Expand Health Savings Eligibility
The IRS just made Health Savings Accounts significantly more accessible for American expats. According to IRS Notice 2026-5 released December 9, 2025, new provisions under the One, Big, Beautiful Bill Act expand who can contribute to HSAs and what coverage qualifies as a High Deductible Health Plan starting in 2026.
If you’re an American living abroad, you may now have more options to save tax-free for healthcare costs. Here’s what changed and how it affects you.
What Changed for Expats in 2026?
Three major changes expand HSA access:
- Telehealth coverage is permanently allowed. You can now keep an HDHP that covers telehealth and other remote care services before you meet your deductible and still contribute to an HSA. This provision applies retroactively to 2025.
- Bronze and catastrophic plans count as HDHPs. If you purchase individual coverage through a health insurance exchange, bronze and catastrophic plans now qualify as HDHPs regardless of their deductible amounts.
- Direct Primary Care arrangements no longer disqualify you. Starting in 2026, enrollment in qualifying Direct Primary Care Service Arrangements won’t prevent you from contributing to an HSA.
These changes matter because they address situations that previously blocked many expats from HSA contributions despite having qualifying coverage.
What is an HSA?
An HSA is a tax-advantaged savings account specifically for medical expenses. For the 2025 tax year (filed in 2026), you can contribute up to $4,400 for individual coverage or $8,750 for family coverage. If you’re 55 or older but not yet on Medicare, you can add an extra $1,000 to these limits.
The triple tax advantage makes HSAs powerful:
You contribute pre-tax dollars, reducing your current taxable income. Your money grows tax-free through investments. Withdrawals for qualified medical expenses are tax-free.
Plus, you can roll over unused HSA funds indefinitely. Unlike flexible spending accounts, there’s no “use it or lose it” rule.
Qualified medical expenses you can pay with your HSA include:
- Doctor visits and medical care
- Prescription drugs
- Eyeglasses and contacts
- Dental care
- Mental health care
- Long-term care
You can also use your HSA for online purchases of qualified items, including prescription drugs through platforms like Amazon.
See If Your 2026 Coverage Qualifies For HSA Contributions
Should I Keep My HSA as an Expat?
Yes. There’s no reason to close your HSA when you move abroad.
Some expats make the costly mistake of cashing out their HSA to have funds on hand when relocating. This triggers income tax on the entire balance plus a 10% penalty if you’re under 65.
Your HSA is a safety net that continues working for you overseas. You can access it for qualified medical expenses in any country, and the funds grow tax-free until you need them.
If you’re a young expat, leaving your HSA to grow makes even more sense when your provider offers investment options. These contributions can become significant retirement assets. Once you turn 65, you can withdraw HSA funds for any reason without penalty, though you’ll still pay income tax on non-medical withdrawals.
Eligibility Requirements for Opening an HSA
To maximize the tax advantages of a Health Savings Account as an expat, you must meet these IRS requirements:
- Enrollment in a Qualified High-Deductible Health Plan (HDHP). You must be covered by an HDHP that meets IRS standards. For the 2025 tax year (filed in 2026), the minimum annual deductible is $1,700 for self-only coverage or $3,400 for family coverage. The plan’s out-of-pocket maximum cannot exceed $8,500 for self-only or $17,000 for family coverage.
- NEW for 2026: Bronze and catastrophic plans purchased through health insurance exchanges now automatically qualify as HDHPs, even if they don’t meet traditional deductible requirements.
- HMOs and PPOs can qualify. You can open an HSA with an HMO or PPO plan that meets HDHP standards. The network type doesn’t affect eligibility.
- No other disqualifying coverage. You cannot have additional health coverage that provides benefits before you meet your HDHP deductible, except for permitted coverage like dental, vision, or accident insurance.
- NEW for 2026: Direct Primary Care Service Arrangements under $150 per month ($300 for family) no longer count as disqualifying coverage.
- Not enrolled in Medicare. You cannot contribute to an HSA if you’re enrolled in any part of Medicare.
- Not claimed as a dependent. You must not be claimed as a dependent on someone else’s tax return.
Can I Contribute to an HSA as an Expat?
All U.S. citizens can contribute to an HSA if they maintain a qualifying HDHP. An HDHP is a high deductible health plan, which means it has lower monthly premiums and higher out of pocket costs compared to traditional health insurance. The IRS sets minimum deductible and maximum out of pocket thresholds each year for a plan to qualify.
An expat can keep contributing to an HSA if they continue paying for a US based HDHP. That said, the tax benefits may not outweigh the cost of keeping the plan active. For context, the average HDHP premium was 928 dollars monthly in 2022.
Expats with only foreign health insurance cannot contribute to their HSAs. Foreign health coverage doesn’t meet the IRS definition of an HDHP, even if the deductible is high.
You can still use any existing HSA funds for qualified medical expenses worldwide.
The Telehealth Game-Changer for Expats
Before the One, Big, Beautiful Bill Act, HDHPs that offered telehealth coverage before the deductible was met could disqualify you from HSA contributions. This created problems for expats who relied on US-based telehealth services while living abroad.
The permanent change: Starting with the 2025 tax year, HDHPs can offer telehealth and other remote care services with no deductible without affecting your HSA eligibility.
This is significant for expats because:
You can maintain access to US-based doctors via telehealth for prescriptions, consultations, and ongoing care management. You can keep contributing to your HSA despite using these telehealth benefits. The change applies retroactively to 2025, so if you had an HDHP with telehealth coverage in 2025, you can still make full HSA contributions for that year.
Bronze and Catastrophic Plans Now Qualify
The biggest change for expats purchasing individual health coverage is that bronze and catastrophic plans available through health insurance exchanges now count as qualifying HDHPs.
What this means: You don’t need to verify deductible amounts or out-of-pocket maximums for these plans. If it’s a bronze or catastrophic plan offered through an exchange, it qualifies.
This matters for expats who:
- Return to the US periodically and need coverage during those visits
- Maintain US coverage for family members still stateside
- Keep catastrophic coverage for emergencies while living abroad
Bronze plans offered through Small Business Health Options Programs (SHOP) don’t automatically qualify unless they meet traditional HDHP requirements. Bronze plans purchased off-exchange qualify if the same plan is available through an exchange. If you’re using an employer-sponsored Individual Coverage HRA to purchase a bronze plan, it still qualifies as an HDHP.
Direct Primary Care Arrangements No Longer Disqualifed
Starting in 2026, enrollment in qualifying Direct Primary Care Service Arrangements (DPCSAs) won’t prevent you from contributing to an HSA.
What is a DPCSA? These are arrangements where you pay a fixed monthly fee (typically $50-150) to a primary care practice in exchange for unlimited primary care services. Common services include physical exams, vaccinations, urgent care, basic lab work, and treatment for common illnesses.
Qualifying criteria for DPCSAs:
Monthly fees cannot exceed $150 for individual coverage or $300 for family coverage Services must be limited to primary care (no procedures requiring general anesthesia) Prescription drugs beyond vaccines are excluded Only basic lab services typically provided in primary care settings
Why this matters for expats: Many expats returning to the US or maintaining ties to specific US locations benefit from DPCSA memberships for routine care during stateside visits. Previously, these arrangements disqualified HSA contributions. Now you can maintain both.
NEW benefit: You can use your HSA tax-free to pay DPCSA fees, even if the arrangement charges more than the monthly limit for non-disqualifying coverage. The only difference is whether the DPCSA prevents HSA contributions.
Can I Use HSA Funds While Abroad?
Your HSA works anywhere in the world for qualified medical expenses.
Nothing in tax laws prohibits using HSA funds abroad for medical treatment. It’s one of the best ways to access tax-free money for healthcare costs overseas.
Even if you’re no longer eligible to contribute to your HSA, you can still use existing funds to pay for qualified medical expenses. This is valuable for expats in countries with high healthcare costs or those paying out-of-pocket for services.
What you can pay for with your HSA abroad:
Medical transport and lodging for a companion when receiving medical care Prescription and over-the-counter medications (if legal in both the US and your host country) Medically necessary services and treatments Dental and vision care Mental health services
How to use your HSA overseas:
Most HSA-linked debit cards with Visa or Mastercard symbols work internationally, though providers typically charge conversion fees between 1-3% and may use unfavorable exchange rates.
If the vendor doesn’t accept card payment, pay the expense first and request reimbursement from your HSA provider. You’ll need copies of medical bills, receipts, prescriptions, or doctor’s letters to substantiate the expense.
Purchased medications and services must be consumed or provided in your host country and must be legal in both the US and that country.
The Three Tax Advantages of an HSA
HSAs offer triple tax benefits that compound over time.
1. Tax-Free Contributions
Contributions reduce your taxable income for the year. If you contribute $4,400 and you’re in the 22% tax bracket, you save $968 in taxes. In the 35% bracket, that same contribution saves $1,540.
Most expats using the Foreign Earned Income Exclusion to exclude up to $130,000 (2025 tax year) or the Foreign Tax Credit may not benefit from HSA deductions on excluded or credited income. However, HSA contributions can reduce any US tax liability on income above the FEIE limit.
2. Tax-Free Growth
Money in your HSA can be invested like an IRA. All investment earnings are tax-free as long as you eventually use them for qualified medical expenses.
The compounding effect over decades can build substantial balances. A young expat contributing $4,400 annually with 7% average returns could accumulate over $400,000 by retirement.
3. Tax-Free Distributions
Unlike traditional 401(k)s or IRAs where you pay taxes on withdrawals, HSA distributions for qualified medical expenses are completely tax-free at any age.
After 65, you can withdraw HSA funds for any reason without the 10% penalty (though you’ll owe income tax on non-medical withdrawals). This makes HSAs work like traditional IRAs with the added benefit of tax-free medical withdrawals.
Potential Penalties for HSA Contributions Without an HDHP
Contributing to an HSA without qualifying HDHP coverage triggers two types of penalties.
- Excess contribution penalty: 6% annually on excess contributions until removed. This penalty applies each year the excess remains in the account, not cumulatively.
For example, a $1,000 excess contribution costs $60 the first year. If left uncorrected, another $60 penalty applies in year two, and so on until you remove the excess.
- Income inclusion penalty: Any investment income earned on excess contributions is fully taxable, plus a 10% early withdrawal penalty if you’re under 65.
Example: You made $1,000 in excess contributions each year for five years. These contributions earned $2,000 in investment income. If you’re in the 22% tax bracket, you owe $200 (10% penalty) plus $440 (22% income tax) on the $2,000 earnings. Combined with the 6% annual excess contribution penalty over five years, the total cost becomes substantial.
When Should I Use My HSA?
You can roll over HSA funds indefinitely until 65, allowing tax-free growth. Consider reserving HSA funds for larger expenses rather than routine care.
Save your HSA for:
Expensive procedures or surgeries Major dental work Vision correction surgery Long-term care expenses in retirement Medical costs after 65 when you can no longer contribute
Pay out-of-pocket for:
Routine prescriptions you can easily afford Basic doctor visits Minor procedures Everyday healthcare expenses
The strategy: Let your HSA grow tax-free while paying small expenses from current income. When you face larger healthcare costs or reach retirement, you’ll have a substantial tax-free healthcare fund.
Keep receipts for all out-of-pocket qualified medical expenses. You can reimburse yourself from your HSA years later, allowing maximum tax-free growth in the meantime.
When Should I Not Use My HSA as an Expat?
Many expats acquire resident status in their host country, making them eligible for universal healthcare or significantly subsidized medical care. If your medical costs are minimal due to this arrangement, you might not need to tap your HSA funds.
Leave your HSA intact if:
You have access to quality, affordable healthcare through your host country’s system You’re young and healthy with minimal medical expenses You can’t prove expenses are legally prescribed or IRS-qualified.
If you can’t document that an expense is qualified, you may owe income tax plus a 10% penalty on the distribution. When in doubt, consult your HSA provider or tax advisor before making withdrawals.
Strategic Considerations for Expats
Maintaining HDHP Coverage While Abroad
Few US-based health insurance plans provide overseas coverage. Most expats choose health insurance in their host country rather than maintain expensive HDHP coverage.
However, some scenarios where keeping an HDHP makes sense:
You return to the US regularly for several months each year You maintain a US residence and need coverage during stateside periods Your employer offers an HDHP as part of your expat benefits package You’re near retirement and want to maximize HSA contributions before Medicare eligibility
Combining HSA with Other Expat Tax Benefits
If you have income above the Foreign Earned Income Exclusion limit of $130,000, HSA contributions can reduce your US tax liability on that excess income.
Example: You earn $150,000 in 2026 and claim the full FEIE. The remaining $17,100 is taxable. A $8,750 family HSA contribution reduces your taxable income to $8,350, potentially eliminating US tax liability when combined with the standard deduction.
Self-Employment Tax and HSAs
Self-employed expats should note that while FEIE excludes income from income tax, it doesn’t reduce self-employment tax. HSA contributions also don’t reduce self-employment tax, but they can reduce income tax liability on amounts above the FEIE limit.
State Tax Considerations
Some states don’t recognize the FEIE, meaning your excluded foreign income might still face state taxes if you maintain state tax residency. HSA contributions typically reduce state taxable income in states with income tax, providing additional savings if you haven’t severed state tax ties.
Planning for Medicare
You must stop HSA contributions once you enroll in Medicare, which can happen as early as 65. If you’re living abroad and delaying Medicare enrollment, you can continue maximizing HSA contributions.
However, if you’re receiving Social Security benefits, you’ll be automatically enrolled in Medicare Part A at 65, which ends your HSA contribution eligibility.
Next Steps: Getting the Most from Your HSA
- Review your current coverage. Determine if you have qualifying HDHP coverage under the new rules. Bronze plans through exchanges and certain telehealth-inclusive HDHPs now qualify.
- Maximize contributions if eligible. For 2026, you can contribute up to $4,550 for self-only coverage or $9,050 for family coverage (amounts adjusted for inflation). Those 55+ can add $1,000.
- Keep detailed records. Document all medical expenses with receipts, prescriptions, and explanation of benefits forms. This allows strategic reimbursement timing and protects you if the IRS questions distributions.
- Consider your long-term strategy. If you’re young and healthy, maximize contributions and let your HSA grow. If you’re approaching retirement, plan how your HSA fits with Medicare and retirement healthcare needs.
- Verify foreign expense qualifications. Before using HSA funds for treatments abroad, confirm the services qualify as medical care under IRS rules and maintain proper documentation.
Get Expert Help with Your Expat Tax Situation
Navigating HSA rules while managing your expat tax obligations can feel overwhelming. The new provisions create opportunities, but they also add complexity to an already complicated situation.
Our team at Greenback has helped over 23,000 expats file their US taxes correctly while maximizing available deductions and credits. We know how HSA contributions interact with the Foreign Earned Income Exclusion, Foreign Tax Credit, and other expat-specific tax situations.
If you’re not sure whether your health coverage qualifies for HSA contributions, or if you want strategic advice on maximizing your tax-advantaged savings while living abroad, we can help.
Get Expert Help Applying The New HSA Rules To Your Expat Taxes
The information provided here is for general guidance only and should not be construed as legal or tax advice. HSA and tax requirements can be complex, and individual situations vary. For specific advice about your situation, please consult with a qualified tax professional.
