Automatic vs Manual HSA Contributions

This question was submitted by HSA reader Adam. Send yours in to

You explain that contributing to your HSA via automatic payroll contributions is “preferred”, yet you then explain how you choose to contribute manually every month. Is there an advantage to doing it that way?

Either method of contribution will get you to the same place, but there are a few advantages to either. Automatic payroll HSA contributions are defined as deductions from your paycheck each pay period, so you see the contribution amount taken out before taxes are paid on each check. First, if you have automatic payroll contributions, your employer is onboard with the HSA program so there may be the opportunity for employer HSA contributions which would be free money. More generally, contributions made through payroll are “pre-tax” so you immediately recognize tax savings each month (e.g. my taxable income is lower each month, less taxes paid). It also creates a disciplined system where you avoid “forgetting” to contribute, and your contributions are accounted for and organized each month and at year end. Overall it is a more organized, disciplined approach.

My employer never supported HSA contributions so I made manual contributions. To do this, I set an automatic monthly transfer from my bank account to my HSA after my second paycheck. I timed it such in case I needed to cancel the contribution, but doing it after your first pay check is probably more disciplined. These were post-tax dollars being contributed, so I paid taxes upfront and was refunded those taxes once I filed taxes. This creates money “on loan” to the government, but it was nice to get a refund. My HSA provider tracked my contributions for the year, so come tax time I verified this number, plugged it into my filing, and it helped decrease my tax liability for the year. Additionally, manual contributions gives you more flexibility to manage your cash flow. If you are investing your HSA (and know you will maintain coverage for the full year), you could max out your HSA contribution on January 1st, giving your money an extra year to grow. Or you could break it up into quarterly contributions, or contribute at year end with any money leftover.

Either way, after filing taxes your tax liability will be the same, manual contributions just involves paying the government money and then asking for it back.