The "Health Out-of-Pocket Expense Act of 2025" establishes tax-exempt HOPE Accounts for individuals to pay for qualified medical expenses, with contribution limits and specific requirements for eligibility, distributions, and reporting.
Blake Moore
Representative
UT-1
The "Health Out-of-Pocket Expense Act of 2025" or the "HOPE Act of 2025" establishes tax-exempt "Hope Accounts" for eligible individuals to pay for qualified medical expenses. Contributions to these accounts are capped at \$4,000 annually for self-only or married individuals with family coverage, and \$8,000 for heads of household with family coverage, with employer and Medicaid contributions limited to 50% of the individual's limit. Distributions used for qualified medical expenses are tax-free, while non-qualified distributions are subject to income tax and a 30% penalty, with exceptions for distributions after death or due to disability. These provisions will take effect for taxable years beginning after December 31, 2025.
New 'HOPE Accounts' Offer Tax Breaks for Medical Savings, But Strict Rules Apply Starting 2026
The "Health Out-of-Pocket Expense Act of 2025," or HOPE Act, introduces a new way to save for medical expenses: HOPE Accounts. These accounts, launching in 2026, let you stash money away tax-free, but only if you follow a pretty specific set of rules.
Prescription for Reform
The core idea is to help people save for qualified medical expenses. Think doctor visits, prescriptions, and other health-related costs. Money put into a HOPE Account isn't taxed, and as long as you use it for qualified medical expenses, it stays untaxed when you take it out. Sounds good, right? Well, there's a catch – several, actually.
First, you have to be enrolled in what the government calls "minimum essential coverage" or be using the Indian Health Service. You also can't be contributing to a Health Flexible Spending Arrangement (FSA), Health Savings Account (HSA), Health Reimbursement Arrangement (HRA) or Archer MSA. Second, there are contribution limits: up to $4,000 a year for individuals, or $8,000 for heads of household with family coverage, spread out in monthly chunks. Employers or Medicaid can chip in, but only up to 50% of your limit. Third, if your adjusted gross income (AGI) was over $100,000 last year, you can't get the tax break on employer contributions (Section 2(c)).
Real-World Checkup
Let's say you're a freelance graphic designer with an AGI under $100,000 and you anticipate some hefty dental bills next year. You could set up a HOPE Account and start putting away money each month, up to your limit. That money grows tax-free, and when those dental bills hit, you can pay them directly from the account without owing any taxes on the withdrawals. For example, you put aside the maximum $4,000. Because of this bill, that's $4,000 that is not subject to income tax. However, if you're a software engineer making $110,000 a year, any contributions your employer makes to your HOPE Account will be taxed as part of your income.
The Fine Print
Here's where things get even trickier. If you use the money for anything other than qualified medical expenses, you'll get hit with a 30% tax penalty on top of regular income tax (Section 2(a)). The trustee of the account (likely a bank or insurance company) has to report all contributions and distributions, and there are strict rules about proving your expenses are legit (Section 2(a)). There will be reasonable fees to administer the account, but the bill does not specify what "reasonable" means (Section 2(a)).
The bill also amends several sections of the existing tax code (Sections 4973(a), 106, 4980G(a), 4975(e)(1), 6693(a)(2)) to weave HOPE Accounts into the current system, including penalties for excess contributions and failure to report. While the HOPE Act aims to make healthcare costs more manageable, the details reveal a system that's pretty complex and might not be for everyone. The income limitations and penalties, in particular, could be a real headache, especially for those who aren't making a ton of money or who have unexpected non-medical expenses pop up.