Updated October 7, 2026. Quick answer: No. Alabama does not tax HSA contributions: ones you deposit yourself are deducted, and pre-tax payroll ones are already left out of income. The Department of Revenue’s Form 40 booklet says residents may “deduct from gross income deposits made to a health saving account” (line 12) and adds that contributions made “using pre-tax dollars are not deductible” there, and the Department says Alabama recognizes the “Section 125 Cafeteria Plan” exclusion from gross income. The 2026 federal HSA limits are $4,400 for self-only coverage and $8,750 for family coverage.
Alabama HSA tax treatment at a glance
| Item | What the documents say |
|---|---|
| Contributions | Residents may deduct deposits up to the maximum allowed under 26 USC 223 on Form 40 line 12; contributions made with pre-tax dollars are not deductible there, because Alabama recognizes the Section 125 cafeteria-plan exclusion from gross income |
| Earnings | Not stated in the documents read |
| Distributions | Not stated in the documents read |
| Where it is reported | Form 40, line 12 |
| Federal HSA limits, 2026 | $4,400 self-only; $8,750 family |
| Source | Alabama Department of Revenue; IRS Revenue Procedure 2025-19 |
What the Alabama documents say
The Form 40 booklet’s instruction for Line 12, Contributions to a Health Savings Account (HSA), says residents may “deduct from gross income deposits made to a health saving account”. It defines the deductible contributions as those a taxpayer makes up to the maximum the federal HSA section, 26 USC 223, allows, and then says that contributions made “using pre-tax dollars are not deductible”.
The Department’s question-and-answer page asks whether Alabama allows an adjustment to an HSA like the IRS and answers yes: residents may “deduct contributions made on or after January 1, 2018”, to coincide with the annual amount allowed by federal law.
Earnings, distributions and the rest
Read together, the rule is a deduction on the Alabama return for contributions you made yourself, capped at the federal amount, and no second deduction for money that already left your paycheck before tax. For that payroll money the Department’s withholding guidance points the same way: its question-and-answer page on cafeteria plans says Alabama recognizes the “Section 125 Cafeteria Plan” exclusion from gross income, and its withholding rule 810-3-72-.01(5) says employer contributions under a Section 125 cafeteria plan are not included in the employee’s gross income and are not subject to Alabama withholding tax. The documents read do not tie an HSA to a cafeteria plan in so many words, and they do not address HSA earnings or distributions.
A worked example at the 2026 family limit
An illustration, not a return: a resident with family coverage who personally deposits $8,750, the 2026 federal family limit, from after-tax pay would be within the cap the booklet refers to, so the line 12 deduction could be up to $8,750. If the same $8,750 went in through pre-tax payroll, the booklet says it is not deductible again on line 12.
What a mover should know
Every figure on this page is Alabama’s own rule. If you moved during the year, or live in one state and work in another, check each state’s page and return, because the documents read here describe only Alabama and none of them settles a part-year or two-state case. The federal side is the same everywhere: see CMG’s 2026 HSA contribution limits page, and state tax on HSA contributions for the other states checked.
What the documents do not say
- The Alabama Code section is not cited: the Legislature’s code site could not be archived. The Department’s documents read do not address HSA earnings or qualified distributions. The booklet read is for tax year 2025.
Common mistakes
- Deducting on Form 40 line 12 a contribution that was already made with pre-tax dollars through payroll; the booklet says those are not deductible.
- Assuming Alabama taxes pre-tax payroll HSA contributions because the line 12 deduction covers only money you deposit yourself; the Department recognizes the Section 125 cafeteria-plan exclusion for that money.
- Assuming the answer for one state applies to another, or that the state answer changes the federal limits.
Related: 2026 HSA contribution limits, state tax on HSA contributions, Alabama retirement taxes, and how Alabama taxes 401(k) and IRA withdrawals.
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Answer againSources
- Form 40 Booklet (2025): https://www.revenue.alabama.gov/wp-content/uploads/2026/01/25f40bk.pdf
- Does Alabama allow an adjustment to a Health Savings Account (HSA) like the IRS?: https://www.revenue.alabama.gov/faqs/does-alabama-allow-an-adjustment-to-a-health-savings-account-hsa-like-the-irs/
- We have a Section 125 Cafeteria Plan available to our employees, does the State of Alabama recognize this exclusion from gross income?: https://www.revenue.alabama.gov/faqs/we-have-a-section-125-cafeteria-plan-available-to-our-employees-does-the-state-of-alabama-recognize-this-exclusion-from-gross-income
- Alabama Administrative Code r. 810-3-72-.01, Included and Excluded Wages: https://www.revenue.alabama.gov/wp-content/uploads/2023/12/810-3-72-.01.pdf
- Revenue Procedure 2025-19 (Internal Revenue Service): https://www.irs.gov/pub/irs-drop/rp-25-19.pdf
Sources: the primary documents linked above, read on October 5 and October 7, 2026. General information, not tax advice. Your own facts decide the outcome, and a tax professional or the state agency itself is the right place to confirm anything consequential.