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Filling out the FAFSA with an HSA

When filling out the FAFSA for financial aid, it’s important to consider how your HSA (or your parents’ HSA) factors into the required income reporting. Since HSAs are tax-advantaged accounts, you should treat tax-free contributions to your HSA as untaxed income. If you’re a student who is claimed as a dependent on your parents’ taxes, or you file on your own and have an HSA (not a dependent on your parents’), the tax-free contributions to the HSA should be indicated on the W-2 as untaxed income. The balance in the account does not count as an asset, nor would distributions from it count as untaxed income when they are used for qualified medical expenses. Distributions not used for qualified expenses are subject to income tax (and a possible penalty) and will be counted in your adjusted gross income.

For more information on how your HSA and other tax-advantaged accounts affect your FAFSA reporting, refer to this document (Chapter 2):

https://ifap.ed.gov/fsahandbook/attachments/1516AVG.pdf

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