During benefits open enrollment at my employer, I signed up for both Health Savings Account (HSA) and Flexible Savings Account (FSA) for next year.
You may have heard that you can’t contribute to both HSA and FSA in the same year. It’s not true. You can contribute to HSA and FSA in the same year.
First of all, if the FSA is a dependent care FSA, you can definitely have it in conjunction with HSA.
Second, if your health care FSA and HSA don’t overlap, you can contribute to both in the same year. For example if you have FSA with one job and you join another company that offers a high deductible plan with HSA, you can sign up for the HSA for the remaining months. If you are aggressive, you can invoke the “last month rule” and contribute the full year maximum to your HSA.
Last, which is the case for me, you can contribute to both HSA and health care FSA in overlapping months in the same year as well, if the FSA is a limited purpose FSA or a post-deductible FSA.
A limited purpose FSA covers dental, vision, and other eligible expenses, but not medical or prescription drugs. A post-deductible FSA kicks in only after you satisfied the deductible in a high deductible plan. I’ve never seen a post-deductible FSA. If your employer offers an HSA-eligible medical plan, it likely will make the FSA a limited purpose FSA for those who sign up for the HSA plan.
Why do you want to contribute to a limited purpose FSA in addition to the HSA? Because you want to save more pre-tax dollars. Just use the money in the limited purpose FSA to cover dental, vision, and other eligible expenses and save more of your HSA dollars for the future.
Some dental and vision expenses are predictable. If you need a dental implant or if your kids need braces, you have the treatment plan. You know roughly how much you will pay out of pocket. If you wear contact lenses, you know how much they cost over the course of a year and how much insurance will cover. Use a limited purpose FSA to cover these expenses instead of taking money out of your HSA or paying out of pocket with post-tax dollars.
FSAs have become more flexible since the IRS allowed employers to add a 2-1/2-month grace period or a $500 rollover for unused dollars. My employer chose the $500 rollover option. When unused dollars in a limited purpose FSA roll over to the following year, they stay as limited purpose and they don’t interfere with the HSA.
What you can’t do is to contribute to an HSA and have a general purpose health care FSA for overlapping months, and if you are married, your spouse can’t have a general purpose FSA at the same time either, regardless whether the two of you are on the same health plan or whether you actually request reimbursement from your spouse’s FSA. Just the fact that you are eligible to have your medical expenses reimbursed from your spouse’s FSA disqualifies you from contributing to an HSA.
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Bill123 says
Wait if my spouse has a traditional health plan and I have a high deductible plan she can’t have a general FSA and I can’t have a HSA? If that’s right hour do I unwind one of the accounts and which one would be better to undo?
Mitch says
@Bill123 – That’s also news to me. Curious to hear the responses. I don’t see why my HSA should be impacted by whatever my wife does on her insurance – it’s not like I’m able to contribute above the single HSA limit since we’re separate.
Harry Sit says
You can have either — you contribute to your HSA or your spouse contributes to her FSA — but not both at the same time. Here’s what the IRS said in Rev. Rul. 2004-45:
“In Situation 1, the individual is covered by an HDHP and by a health FSA and HRA that pay or reimburse medical expenses incurred before the minimum annual deductible under section 223(c)(2)(A)(i) has been satisfied. The health FSA and HRA pay or reimburse medical expenses that are not limited to the exceptions for permitted insurance, permitted coverage or preventive care. As a result, the individual is not an eligible individual for the purpose of making contributions to an HSA. This result is the same if the individual is covered by a health FSA or HRA sponsored by the employer of the individual’s spouse.”
The last sentence deals with the health FSA via your spouse. The keyword is “covered.” Your expenses *can* be reimbursed from your spouse’s FSA. That makes you “covered” whether you actually request reimbursement from your spouse’s FSA or not, in the same way you are covered by insurance whether you actually file a claim or not.
It’s easier to unwind the HSA. You work with the HSA provider to withdraw the excess contributions.
Mitch says
Harry,
Well, so my situation is this. I had an HSA going into 2015 (single). Wife had an FSA going into 2015 (single).
We got married this year (obviously). So I’m basically in trouble? How is that realistically sane to have such rules like that? Makes absolutely no sense at all.
Harry Sit says
I didn’t make the rules. 🙁 HSA is month-to-month. Starting in the month you got married, you stopped being an eligible individual for contributing to your HSA. The process of withdrawing excess contributions is for situations like yours.
Mitch says
So would contributions in Jan-May be fine? Good news there is I changed employer and each employer made contributions in that time frame… therefore my Jun-Dec were proportionally lower.
Harry Sit says
The month-to-month is more about the contribution limit, rather than the actual timing of the deposits. Your limit is 5/12 of the full-year limit (assuming you got married in June). Just add up all contributions from yourself and from all employers. If it comes under the reduced limit, you are OK. If it’s over, you will have to withdraw the excess plus earnings.
Hopeful says
Similar newlywed situation, I have HDHP+HSA and she has PPO+FSA. We married in October ’16. Her enrollment/plan start is May 1, 2017. She will not re-enroll in the FSA. So I am limited to 9/12 for 2016 and 8/12 for 2017. I think I’m going to skate on this because my contributions for ’16 were only $1600 and that’s what I plan to put in for ’17.
The fact that the payroll deducted amounts continued after we were married doesn’t hurt because the total is still below $2,512.50 and $2,345 ((9/12)*3350 and (8/12)*3400)?
Harry Sit says
Correct, the limit is by the total amount contributed for the year, not when the money was actually contributed.
Alberto says
We did this in 2015.
We had the FSA and family HSA max out.
FSA was for dental (braces and implants) and vision (glasses, shades, and contacts) while HSA was for any qualified medical expenses as detailed in IRS HSA Sheet.
FSA could also be used for vision correction surgery. Not certain about hair implants or plastic surgery.
My two cents.
This should be part of everyone’s financial plan. Meaning that your financial plan must have a savings part (entry), widthdraw part (exit), and a Health Savings Part even if you have employer provided health insurance during retirement. This would pay your cost for medicare Parts A, B, and D or Long Term Care.
Matt says
Just got forms from my employer for next year, and saw this *very* interesting tidbit mentioned about the limited purpose FSA (while still having an HSA):
A Limited FSA only allows for reimbursement of dental, vision or post-deductible medical expenses*.
*Post-Deductible Medical Expenses: Each year, the IRS determines the minimum deductible required for a health plan to be considered HSA-eligible. “Post-deductible” medical expenses are those incurred after this minimum HSA deductible has been met. The minimum deductible for 2016 is $1,300/single or $2,600/family. This means that once an individual has incurred $1,300 in expenses applied toward their medical deductible, they may then be reimbursed from their Limited FSA for subsequent medical expenses. Once a family has incurred $2,600 in expenses, medical expenses may then be reimbursed from the FSA. The minimum IRS deductible is generally lower than the employer sponsored health plan deductible.
We have a $3,000 individual and $6,000 family deductible. With a baby due next year, we’ll definitely be going above $1,300, so if I understand correctly, I can max out my HSA, put $1,700 in my FSA, and withdraw the $1,700 to reimburse myself for the difference between $3,000 and $1,300, and invest the HSA funds and let them compound, using it as the “super retirement fund” mentioned by the Mad Fientist blog, reimbursing myself for the $1,300 years down the road.
Matt says
Not sure if this is the same as the post-deductible FSA you mentioned (since it’s *called* a limited FSA). It also does say the following though:
“Please note, some employers have chosen not to permit reimbursement for post-deductible medical expenses”
Matt says
Sorry about the barrage of posts, after calling the HSA/FSA administrator company, apparently it doesn’t work like it does with deductibles (where if you have a $3,000 individual deductible, anything more towards that individual is covered even if your family deductible is $6,000). With a family plan, we would need to hit $2,600 before any benefit could be derived. Still cool stuff though!
Harry Sit says
It sounds like the generic form from the provider is used for multiple employers. You should confirm whether your employer chose to activate the post-deductible feature. If so, it would be a sighting of the post-deductible FSA that I mentioned.
Randall says
@ HarrySit
What about the FSA *then* HSA scenario?
My wife and I were on a non-HDHP through June 30, 2015 with an FSA. This insurance ended June 30.
On July 1, 2015 we switched to new insurance (due to change of jobs) with an HDHP and contributed the full amount of $6650 an HSA.
The FSA and HSA did not run concurrently, but they were open during the same year. I’ve read publication 969 and the rules revision that you posted above (Rev. Rul. 2004-45), and they are terribly opaque. It sounds like if you have an FSA open at all during the year, you cannot then open an HSA (although the reverse is allowed – you can open an HSA, stop making contributions, and suspend in favor of an FSA).
Can I open the HSA this year, or do I have to wait for next year?
You claim in your article:
Second, if your health care FSA and HSA don’t overlap, you can contribute to both in the same year. For example if you have FSA with one job and you join another company that offers a high deductible plan with HSA, you can sign up for the HSA for the remaining months. If you are aggressive, you can invoke the “last month rule” and contribute the full year maximum to your HSA.
Is there language from the IRS to back this up? Thank you!
Harry Sit says
Your FSA from your ex-employer could only reimburse expenses incurred on or before your date of termination. Even if you had money left over in the FSA, you can’t use it for expenses incurred after termination. You can verify this with your ex-employer’s HR or FSA administrator. This makes the FSA and HSA not overlap.
By the month-to-month proration table in Publication 969 (p. 5) and Form 8889 instructions (p. 4), you are eligible from July onward, which results in a reduced limit for the year. If you then want to invoke the “last month rule” (Publication 969 p.5), you can contribute the full limit for the year but you also take on the obligation of a “testing period.” Make sure you are confident you will be able to meet the obligation before you use the “last month rule” in order to contribute the full-year limit. If you fail the testing period, you will have to come back and pay tax and penalty on the excess, which can be a mess.
Randall says
Thank you!
Even with using the last month rule to make myself retroactively able to contribute for the entire year, that does not interfere with the FSA?
My FSA administrator seems to have the account dates for the whole year, but I think that’s just an issue of the ex-employer not informing them of my termination. I will call and make certain they make the change on the account dates to reflect 1/1/15 – 6/30/15. Doing this should keep me covered?
The FSA was this year (2015) and the HSA is this year — so going along with the “last month” rule, it does not retroactively interfere with/ create an overlap among the two accounts?
I’m fairly certain I’ll meet the testing period (which will be all of 2016). So that isn’t the concern – I’m more worried about the eligibility for this year.
Harry Sit says
The point of the last month rule is to make you forgiven, for whatever reasons you weren’t eligible earlier in the year. If you didn’t have the FSA, you still weren’t eligible earlier in the year because you didn’t have a high deductible health plan. Once you are forgiven, you are forgiven for both reasons (didn’t have HDHP, had FSA).
Liz says
I have a new twist on this scenario. Obviously, it’s been said that you can contribute to an FSA and an HSA in the same year if they don’t overlap. My spouse has a 2016 FSA plan year that will run from Jan 1st to June 30th (when his contract ends). He signed up for an FSA that he is, therefore, scheduled to max through contributions made only Jan to June. Even if he is rehired and signs a new contract with the same employer, it won’t begin before Sept (it’s a school district) and FSA wouldnt carry over.
As a family, we have been on the same HDHP since 2014 and contributed to an HSA in 2015. For 2016, we are not planning to contribute to the HSA again until some time after the FSA period terminates in June to avoid overlap. Sound above board?
The twist is that my employer (or “the plan”) contributes a small amount to the HSA each month, which I assume will start again in Jan. Am I correct that I need to suspend these contributions somehow? If I don’t, it will cause the HSA to overlap with the FSA? I can’t exactly “take” them back since I won’t have contributed them. Otherwise, I suppose I could the contributions as income on my tax return to avoid any tax issues(?).
Damn, this area is so murky. To add to my annoyance, the FSA is general, not specifically limited, but we are only planning to use it for vision correction, which (clearly) does not count toward our HDHP deductible. And no one at the insurance company or HR depts of either employer has any idea how to comment on this situation.
Gokhan says
Well I have the same problem. I have HSA and my employer is contributing to HSA and my wife’s employer is contributing to FSA. Even though my wife asked her employer to stop contributing they did not stop it. As a result, we will have both FSA and HSA in the same year. Even though we did not open either of them and we did not contribute them. I do not know how it will effect my taxes next year.
Randall says
To get that granular, you’d have to call the IRS. Call now before they get busy with tax season, from the IRS bulletin that Harry mentioned above:
The principal author of this notice is Shoshanna Tanner of the Office of Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). For further information regarding this notice, contact Ms. Tanner at (202) 622-6080 (not a toll-free call).
It does seem that it’s not allowed to have an FSA and HSA at the same time, even if you didn’t want to have it (intention is not considered as a part of ‘tax fraud’). You can still put back any contributions that you have made to the HSA, and you should come out ahead with what the employer contributes (as it’s not, per se, your money).
To note, the IRS does not have a method of accounting for your FSA contributions and activity, as this is not reported with federal taxes.
Robin Conradi says
I am enrolled in a family plan HSA. My husband accidentally enrolled in a healthcare FSA at his company and I told him that the government does not allow us to be enrolled in both an HSA and a general purpose healthcare FSA (IRS Rev. Rul. 2004-45) and so he contacted his HR and they said there is nothing they could do. They stopped further contributions from going in, but he has already contributed $346.14 to his FSA. I am not sure what to do. I am thinking the best I can do is reduce my HSA contributions by $346.14 to ensure we don’t exceed the government max of $6750. But, have we inadvertently and irrevocably committed tax fraud?
RJ says
You can actually contact the IRS about this matter, which might be the best in your case. Escalating the FSA issue with the vendor (instead of HR) to have those revoked could be a possibility, too.
Liz says
I don’t see why you couldn’t just report that amount as income on your tax return and pay on the back end. I guess that doesn’t solve the issue of FICA though?
I posted a similar issue above – my employer refuses to stop the “plan” contribution to my HSA despite my request.
liesel says
I have an FSA that I have used up. Open enrollment is in May 2016 ( now) . In June of 2016 it will kick in with the new FSA amount. If I had a medical procedure that occurred in May 2016, can I pay using my June 2016 FSA amount. I havent been billed yet.
Harry Sit says
No.
liesel says
Thanks…
Joe says
Is it correct that I am free to use the balance of an old HSA account for qualified medical expenses (no contributions) even if I am now enrolled in a FSA account? My scenario is as follows:
Jan 2014 – November 2014 –> Enrolled in HDHP, contributed to HSA plan
December 2014 – December 2016 –> Not enrolled in HDHP, no HSA contributions (only deductions)
Jan 2016 – Present –> Enrolled in FSA
I am fully allowed to use the balance in my old HSA in conjunction with the FSA, correct? The discussion about not having an FSA and HSA open simultaneously is really about contributions, and not deductions, right?
Harry Sit says
That’s correct.
Wanda says
We are near the end of open enrollment where we are offered a nice company contribution to our HSA to enroll in a HDHP. The catch is I am currently making contributions to my FSA account under my current plan.
We are tied to completing the contributions to the FSA plan. Can I go to the HDAP plan if my employer makes the contributions to the HSA plan and I do not make contributions before the first of 2017.
I have heard talk about limited FSA plans but not sure what that covers. Need help ASAP
Liz says
My understanding is that a limited FSA has to be designated as such by the employer, so you would have to check with your benefits dept to find out if your employer offers that.
I don’t understand your question though. You are already contributing to an FSA for all of 2016, but your employer is allowing you to switch plans mid-year?
Harry Sit says
Wanda – Ask your employer whether your FSA will turn into a limited purpose FSA after you enroll in HDHP. A limited purpose FSA will only pay for dental and vision, not medical co-pays or deductible. Worst case if the FSA stays as a general purpose FSA, you only have to withdraw the employer contribution to the HSA as excess contribution. You will pay tax on the employer’s HSA contribution, just as you will pay tax on your salary. You are still better off after paying tax, assuming you want the HDHP with its high deductible.
Liz says
Do you have to withdraw your employer contributions as excess contributions in addition to reporting it to the IRS that as taxable income? I have some HSA employer contributions that I will need to withdraw/report as income during the first half of the year when it continued to make contributions after we opened an FSA with my husband’s employer.
Harry Sit says
Liz – If you don’t withdraw the excess contribution, you will have to pay 6% excise tax in each year the excess contribution stays in the account.
Kevin Chan says
My whole family is under HDHP and I contributed to HSA. from next month I switch job. Now my new job also provide HDHP and HSA, but I need to pay panelty if my wife is also covered, since she can be covered by her company’s plan. but Her company only provide traditional plan with FSA. My understanding is, I can choose to cover by my company’s plan and contribute to HSA, and my wife and the kids are covered by my wife’s plan and she contributed to limited FSA at the same time. I can use my HSA account to cover the medical expense of my wife and my kids. Right?
Harry Sit says
If she’s not in HDHP, it’s unlikely her employer will put her in a limited-purpose FSA. As such for the remaining months, you can either contribute to your HSA at individual level or have her contribute to her general purpose FSA, but not both. Once contributed, the money in either your HSA or her FSA can pay for expenses for either of you or the kids.
Kevin Chan says
Thanks Harry. I am happy as long as the money in my HSA can pay for the medical expense of my wife and my kids, even though they are covered by traditional plan from my wife’s company. I am curious when limited-purpose FSA can kick in. In my situation, if I use the HDHP of my company to cover the entire family and contribute to my HSA, my wife’s company can then put her in limited-purpose FSA, right?
Harry Sit says
She can ask her employer. Usually the employer puts the employee in a limited purposed FSA only when the employee is in an HSA-eligible plan from that employer, not when she gets no coverage from her employer.
Jeana Seal says
My employer started offering to put money into an HSA if employees chooe the high deductible Health insurance plan. Many of our employees would love to have the HSA but were already contributing to a nonlimited FSA plan. The FSA plan year is Jan 1 to Dec 31, our HSA contributions would start at the beginning of our benefit year which is Oct 1 to Sept 30. We are under the impression that our employees that are participating in the current nonlimited FSA plan can not participate in the HSA until Jan 1 (if their balance is zero) or the end of March (the end of the grace period) (The qualifying event). If that is correct then the next question is can the employer at the time an employee becomes eligible to participate in an HSA the amounts accruing since Oct 1 (when they switched to the high deductible plan) ? Does the end of the plan year, if the balance is zero, or the end of the grace period, if the balance was not zero at Dec 31, become a qualifying event for enrollment into an HSA?
Harry Sit says
See comment #14 and its replies.
Marcus says
My wife is currently enrolled in a HDHP health insurance plan and has an HSA. I am covered under her health insurance as well as our newborn.
I recently switched jobs to one that offer PPO health insurance and FSA. For 2016, we are planning to have my wife have a PPO through her employer and myself have a PPO through my employer covering our son.
My question is, can we each contribute to our own FSA or should there only be one. Aggregately, we can only meet the 5K max for dependent care and 2.5K for health costs.
Am I understanding this correctly?
Harry Sit says
Your enrolling in the general-purpose FSA after switching jobs made her HSA contribution limit zero for the remaining months. Calculate her new contribution limit for the year according to the table in the article.
I guess you meant 2017 when you wrote 2016. You can have two separate health care FSAs. Each will have its own $2,550 limit or whatever it is in 2017 if you expect $5k in out of pocket health care expenses. The dependent care FSA limit is aggregated between spouses. The health care FSA limit is per employee.
Marcus says
Yes, 2017***
Ok so for 2016, if I do not enroll in FSA and stay with my wife’s health insurance plan she will be able to continue contributing to her HSA?
Could I contribute to FSA only for dependent care this year? Or does any FSA contribution on my part prohibit her HSA contributions?
Thank you in advance Harry.
Harry Sit says
Dependent care is completely separate. It doesn’t affect the HSA. If you don’t enroll in health care FSA, your wife can continue contributing to her HSA. At what limit for the remaining months depends on who covers your son. If she covers your son, she can continue at the family coverage limit. If she covers only herself, she switches to the single coverage limit for the remaining months.
Sam says
Harry, one more question I haven’t seen asked specifically.
Scenario:
2016 (so far): Covered with PPO plan with a general purpose FSA, with a carry-over option. FSA balance is $0 (all contributions used up).
2016 (open enrollment in Oct, change effective Nov 1; same employer): Switching to HDHP plan, with HSA
Am I considered eligible for contribution to HSA in 2015? I’m assuming yes since I will be electing different coverage and will no longer be ‘covered’ by the FSA starting Nov 1. Is there anything official that needs to be done to close the FSA, and is that something that gets done behind the covers by the employer when switching over?
Nils says
Hello Harry,
After reading this blog/post I am still a little confused taking away the right ‘what to do next’ for our own situation. I have an HDHP with HSA and with limited FSA, my spouse has PPO with general FSA. Do I understand correctly that that actually is not allowed, or better said, that in this scenario I would not be eligible to put money pre-tax into my HSA, other then what my employer contributes automatically to my HSA at beginning of year? This was obviously never mentioned anywhere in both of companies open enrollment guides or sessions! So, I contributed from Jan1 to my HSA – and despite being on a leave of absence for 6 months this year I still could contribute for the 6 months with pretax money… In order to not have an issue when we do our 2016 tax return, what are the steps I need to take to ‘reverse’ my contributions so I don’t have issues with our W-2 pretax deductions for my HSA account and in general with our tax return? Also, as I have limited purpose FSA, can I still use that money or is there also an issue with being ‘covered’ under my wife general purpose FSA?
What is the correct way forward? I am sure that talking to both of our employers HR departments they will have no clue what I am even talking about! So I am not expecting a lot of help from them on this… Had many discussions about this before, and didn’t get the right answers most of the time…
Appreciate any input/help/suggestion on this…. Thanks in advance, Harry!
Harry Sit says
When you have other coverage from your spouse’s general purpose FSA, neither you nor your employer is eligible to contribute to your HSA. You can work with the HSA provider to withdraw money already contributed by you and your employer as excess contribution. The withdrawal will be taxed, which offsets your lower W-2, to make it as if you and your employer didn’t contribute in the first place and instead you just had a larger paycheck.
Money in your limited purpose FSA can still be used to reimburse dental or vision expenses incurred by either of you.
Each employer is only responsible for its own plans. Your employer doesn’t know your spouse contributed to a general purpose FSA. Your spouse’s employer doesn’t know you contributed to an HSA. You are supposed to coordinate between the two of you. Next year tell your spouse not to sign up for the general purpose FSA.
Dee says
Hi, Harry, I guess more I read, more confused I get. I get insurance coverage through my husband. And both of us get FSA from our employer. My FSA runs from Jun to May. My husband’s runs from Jan to Dec. My husband’s company now offers HDHP with HSA for 2017, open enrollment is now. Can he still enroll and start contributing in Jun 2017 when my FSA benefit year is over?
Harry Sit says
He can still enroll. His HSA contribution limit for 2017 will be 7/12 the normal limit. That includes any money his employer contributes to his HSA. Remember not to sign up for FSA again when your FSA ends in May and make sure no money rolls over beyond May.
Dee says
And if he use the “last month rule”, he could contribute to max amount, but needs to remain eligible till 12/1/2018. Is this correct?
Harry Sit says
That’s correct but I don’t recommend using the last month rule. Jobs and insurance can change. If he doesn’t stay in an HDHP through December 2018, he would have to go back and remove the excess contributions, pay taxes and penalty, and deal with additional paperwork. I don’t think it’s worth it for less than a half year worth of contributions.
Teresa says
Harry,
Currently, I have a traditional insurance plan and I’m making general FSA contributions each pay period for CY2016, Jan-Dec. My company’s open enrollment period is now for effective date of December 1, 2016. I now have the choice to continue the traditional plan or choose an HSA qualified plan with company contributions monthly to my HSA. Since I can’t have FSA and HSA overlap, if I choose to switch to the HSA qualified plan eff 12/1, should my employer stop withholding my FSA deduction for December since they will now be contributing to my HSA and I can contribute under “last month rule’? Would FSA eligible expenses end eff 11/30 since I would be on HSA qualified plan eff 12/1?
Harry Sit says
Ask your employer what happens to your FSA if you choose the HSA qualified plan. Many employers turn the existing FSA into a limited purpose FSA. It’s still available to cover dental and vision after the switch.
RAC says
My husband, myself and our daughter are all under the HDHP and have an HSA. We took out a FSA, without realizing that it was not a limited (post-deductible FSA). We have used the FSA money. What will happen now? Will we just have to pay taxes on that portion or will we have a lot more issues on our hands? The FSA on has $50 contributed from my company.
Harry Sit says
See reply to comment #19.
Dee says
Regarding #20. I remember somewhere in previous posts said that the lat month rule forgives everything (contributing and spending). But if I don’t use this rule, can I still use my husband’s HSA funds for medical expenses incurred before June? My FSA will be exhausted way before May 2017 when my FSA ends.
Harry Sit says
The last month rule is only about how much you can contribute to the HSA. On the spending side, the requirement is qualified medical expenses you incur after the HSA is established. It sounds like his employer will establish the HSA for him in January.
DJ says
Hi,
I have a quick question:
My firm offers family HDHP and my husband has his own PPO through his firm. If my husband is dual coverage (PPO + HDHP), could I still contribute to the Family HSA which is $6750?
HSA is under my name and I don’t have dual coverage. Thanks!
Harry Sit says
Yes, because you have family coverage. Make sure to only contribute to HSA in your name. It’s not a family HSA although you can use the money in the HSA for your family.
Harry Sit says
However, because you asked in a post about having both HSA and FSA in the same year, also make sure he doesn’t have FSA.
DJ says
hmmm Thanks Harry!
However, my husband already contributed to FSA (only $500). what should we do?
Harry Sit says
Unfortunately your husband’s contribution to FSA makes you ineligible to contribute to HSA for the same year. You can work with the HSA provider to withdraw your HSA contributions as excess contributions.
DJ says
Hi Harry,
Is it okay to withdraw the FSA amount instead?
as it is relatively small.
Harry Sit says
He’ll have to check with his employer. Most employers don’t allow changes.
Audra says
New twist on FSA *then* HSA scenario.
My family is currently covered under a PPO plan through my husband’s employer, and the benefit year runs from July 1 – June 30. He “forgot” to re-signup for the FSA in 2015, so I enrolled in a non-limited FSA through my employer, and we are on a calendar year benefit year.
We will be switching to an HSA-eligible HDHP through his employer for the upcoming benefit year beginning in July 2017 and would like to open an HSA at that time. However, since we are currently enrolled in a PPO plan, we’d like to still take advantage of a FSA (through my employer) until we change plans. Since the family annual FSA contribution limit is $2,600 for 2017, it makes sense to me that we should contribute $1,300 to the FSA through my employer to “cover” the first 6 months of the year before we switch to the HDHP and HSA. We will definitely incur more than $1,300 in reimbursable expenses by June 30. Is this possible?
Also, if that is possible, should I elect the full annual amount and then change my election as of the new plan and HSA effective date to ensure that no further contributions are made to the FSA after then? Or should I elect only the $1,300 and continue making the contributions after the effective date of the new plan but ensure that the full amount of eligible expenses is incurred prior to the effective date of the new plan?
I know this is confusing, but I just want to do everything that I can to take advantage of the tax benefits offered by both types of savings accounts. Thank you for any insight you can offer!
Harry Sit says
Once you enroll in a general-purpose FSA, it’s effective for the whole year. It doesn’t matter if you use up the money on Jan. 2. As long as you still work for the same employer, you are considered to be covered under the FSA until December 31. As such, it will make him ineligible to contribute to the HSA in 2017. So pick one: FSA for the full year or HSA for half a year, but not both.
Kay says
In 2016, I contributed to HSA until 15th July with a HDHP plan.
After 15th July, I joined a different employer and elected for PPO+ General Purpose FSA to its max from Jul till end of Dec’16.
Q1: After spending close to 8 months with HDHP+HSA can I contribute to max of GP FSA with the 2nd employer or I need to prorate it from Jul to Dec’16? Do I need to withdraw 7.5/12* 2550 from FSA?
Q2″ As I have discontinued HSA in 2016, do I violate the testing period by not being with HDHP plan for the whole year 2016.
Harry Sit says
FSA is not prorated by month. Testing period only applies if you used the last month rule last year to contribute more than you are otherwise eligible in 2015.
Kay says
Thank you!
So its okay to use 8/12th of HSA (1st Employer with HDHP) + max of GP FSA (2nd employer with PPO).
Harry Sit says
January through July is 7 months not 8.
Krystina says
I had an FSA for the first two months of 2016. After loosing state medical I signed up for health insurance through my employer. While doing so I canceled my FSA and picked up the HSA. I called the number on the back of my FSA card and verified that my account had been canceled since I saw that I still had the full amount of money in it, and they said that it had been canceled but that the money was still available to me. Throughout the year I used the full amount of the FSA for medical expenses as well as my HSA card. How will this impact my taxes when I file in February?
Harry Sit says
With whom did you have the FSA? FSA is usually sponsored by an employer. Did you only cancel the card but not the account? When you used the FSA money was it only for service dates before you canceled it?
Krystina says
It was through my employer. I canceled the account the end of February when I signed up for the HSA, but used the entire balance throughout the year. I only contributed about 100 but used the full 1000. I assume I will be penalized. If so, will I still be about to file my taxes myself with services such as turbo tax, or will I need to take them in and have them done professionally?
Harry Sit says
You need to find out why the full amount of the FSA was still available after you canceled. Was it for only services you had before you canceled? Was it only for dental and vision (but not medical or prescriptions) after you canceled? If neither, you weren’t eligible to contribute to the HSA. In such case you should work with your HSA provider to remove the excess HSA contributions. After they are removed, you can report the excess in TurboTax.
mvriz says
OK. I’ve read through all of these posted and unless I totally missed it I do not see a scenario such as mine. Keep in mind I’m single. no dependents. 1 employer. 1 health plan.
My employer recently changed health plans. My understanding is that it is still a HDHP ($3500) however, with the new plan they have done away with our HSA and instead will offer a FSA (I’m not sure if its limited or not, yet. But I think it will be). My Employer will contribute to the FSA, but no longer will contribute to the HSA because they said the new Health plan is with a different provider that doesn’t offer HSAs(?). They also said I can contribute to the FSA (pre tax, I believe), however this is a use it or lose it account so I wouldn’t be able to roll over any unused money in the FSA like I do in the HSA, which really through a wrench into my future plans. My plan was to build a nice little “nest” of HSA funds for the future because the unused money in an HSA can be rolled over year to year. Now I have to go back and reevaluate everything. Which leads me to my questions and confusion about HSA & FSA and whether we can have both?
I like to keep a HSA if I can and obvious take advantage of the FSA being offered and sponsored by my employer, however I don’t understand: 1) CAN I keep my current HSA plan even though its not “connected or linked” to the original HDHP my employer initially set it up with or any HDHP for that matter? 2) If I can keep my existing HSA can I continue to contribute to it even though my employer will not? 3) Will those contributions be pre-taxed? 4) IF I can’t keep my HSA initially set up by my employer can I (independent from my employer) have and keep a separate/independent HSA and my employer sponsored FSA at the time (all year long for how ever long I want to keep them) and contribute to both and max out both with my own money?
What I’m trying to do is take advantage of the pre tax benefits of both (if I can without penalty).
I hope this all makes sense.
I’m sure I confused every one, because I get confuse. And, I’m sure I will have more questions once I receive replies. I hope to hear from someone who can help me sort out all these questions and concerns.
Thnx!!
mvriz says
update:
We had our company meeting yesterday to review our new health plan and employer sponsored FSA. This is what I understood. 1) our HDHP is not a HSA eligible plan?? I was told it’s a 1st dollar plan, not sure what that means, but this is why we now have a FSA/HRA vs HSA 2) I cannot contribute to the FSA 3) I cannot continue to contribute to the HSA I already have, but the money already there is mine to use if need be. 4) I cannot get a separate individual pre tax HSA
am I understanding all this correctly?? Have no other option other than the FSA/HRA being sponsored by my employer?
Trying to ask the FSA questions seem as though I’m being ungrateful which is furthest from the truth, however I do want to understand what is being offered, what is available to me and any other pre tax benefits that I can take advantage of now that I no longer have a HSA through my employer.
Please if any one can help me I’d really appreciate it.
June says
Why do you say that you cannot contribute to the FSA?
Harry Sit says
See Not All High Deductible Plans Are HSA Eligible. Yours is not. When your plan isn’t HSA-eligible, you can’t contribute to HSA, whether through your employer or on your own. You can keep the HSA you already have and use the money in it on qualified medical expenses. You just can’t put more money into it until you have an HSA-eligible plan again.
mvriz says
Because this is what FSA rep told us yesterday. I asked him specifically if I couldn’t contribute and he said, no.
mvriz says
our health insurance plan states, “Deductible $3500 will be shared between you (me) and the employer”. My employer does dump some $ into the FSA to offset the high deductible. They contribute 2500, I am responsible for the rest of the Deductible. The plan also states, “First Dollar Benefit-includes deductible, Pharmacy, Copays, Coinsurance, Dental & Vision”, which I’m assuming is the FSA because the amount shown the Employer Pays is $2500. Remaining benefits “employee pays” is $1000.
I’m throwing this out in case it helps clarify my situation any.
Harry Sit says
You mentioned FSA/HRA. They are not the same. Which exactly will you have? Both? HRA is 100% funded by the employer. You can’t contribute to it.
mvriz says
The Rep used FSA interchangeably with HRA so I assumed they were the same or similar, but in the paperwork given to us yesterday it clearly says HRA. Sorry.
June says
Yeah, they are very different. Your rep used the term FSA, even though you don’t actually have access to one? Or is it an FSA option WITH an HRA? You mentioned in the first post that you were told that you COULD contribute to an FSA – what happened with that? For instance, my employer offers a variety of health plans (HD, HMO, etc). You can also sign up for an FSA or HRA or BOTH. They are not tied to a type of plan (I believe. I had them without a health plan at all). The employer contributes to the HRA and the employee contributes to the FSA.
mvriz says
We have a “employer-funded Health Reimbursement Arrangement (HRA)”. That’s what the final paperwork that we were given said. AND, I was told NO I cannot contribute anything to this HRA. NO, I cannot get a separate HSA. And NO I am NOT allowed to have a separate individual FSA and contribute pre-tax money to it. So I guess that’s that.
I know most people are thinking then just dump more $$ into the 401k, however, I’m not a big believer in 401Ks or retirement plans. This is why the HSA was perfect for me. My hope was to be able to contribute pre-tax money into it and have “medical money” set aside for when I needed it. Whether it’s was now, a month, year or 10 years from now. Now that plan has gone out the window. I’m more than a little frustrated.
I do appreciate those who chimed in to help me understand these HSA, FSA, HRAs. Guess I need to reevaluate and redesign my plan and figure out another way to contribute pre tax $$ other than into a retirement plan. IF anyone has any ideas I would love to hear them.
Harry Sit says
$2,500 a year from the employer in the HRA is much better than a “use it or lose it” FSA you have to fund yourself. 401k isn’t that bad. Warm up to it?
June says
Well, we fudged it up again! H’s employer put money in to a HRA for him. Meanwhile we have a family-plan HSA through my employer. I thought the HRA was supposed to be canceled when H’s contract terminated in June. He signed a new contract in September and, surprise, surprise, come January, we receive a notice that his employer contributed to the HRA.
We did not sign up for anything except the dental plan in September and we did not sign up for anything during open enrollment. I don’t understand how they can expect us to keep things straight under these circumstances!
Does anyone have experience or knowledge about cancelling an HRA before the funds are used to maintain eligibility for HSA?
Harry Sit says
Find out whether the HRA can cover your expenses or it’s limited to his expenses. If it’s limited to his expenses, it doesn’t affect your HSA eligibility. You just have to make sure only you contribute to the HSA in your name, at the family coverage level when your plan covers both you and him.
James says
Have a HSA at work that I maxed out in 2016, planned to do the same in 2017. Found out that my wife would have a large pile of medical bills early in 2017 and simultaneously discovered that my employer also has a FSA available to us. I had no idea that there were any rules against contributing to both, so I dumped $2,000 into the FSA for 2017.
Here we are on Feb 2, with $4,000+ medical bills. I’ve already submitted a request for my $2,000 FSA dollars. Was planning on using HSA dollars for the rest, but now I”m not so sure what my options are.
If I’m reading this site correctly, my only option is to reverse the January HSA contribution and not put any additional $ into my HSA this year. Is that right? Alternatively, is it possible for me to now contribute to the HSA in the coming months since I’ve used up my FSA funds already?
I really appreciate any help you can give me.
Harry Sit says
If your employer didn’t make your FSA a limited-purpose FSA, your HSA contribution limit is zero this year or until you leave this employer. Having used up the FSA money doesn’t get you out of it.
Laura says
Thanks for all of this great information-the tax laws are not always easy to understand! My husband is changing jobs and moving from an HSA to a FSA. Since we have impending medical expenses, we have tried to build up as much as we can in our HSA already this year and have contributed $3000 already (of the $6750 we are eligible to contribute as a family). When he gets his FSA, are we still eligible to contribute the max of $2600? And then when the medical bills arrive in August, are we eligible to draw from both accounts?
Harry Sit says
Yes you can still contribute $2,600 to the FSA but if he’s moving to an FSA now he will have to withdraw the excess contribution from the HSA. When you had HSA for only two months you are only eligible to contribute 1/6th of the $6,750 annual limit. See HSA Contribution Limit For Two Plans Or Mid-Year Changes. And yes you can draw from both accounts for eligible expenses (FSA first because it’s use-it-or-lose-it).
Joe P says
Hi Harry,
At the beginning of the 2016 plan year I signed up for an FSA and HSA through my employer. Both plans were set up without any issue and I never heard anything from my employer or the plan administrator. I don’t remember how exactly, but some time in December, I was independently reading something about HSA plans and it said that the IRS does not allow FSA and HSAs concurrently in the same plan year. Long story short I started calling HR and Benefits, they told me to call the plan admin. I called the plan admin and they told me to call benefits. But they did agree that I couldn’t have both plans and it was on me to have known that. I’m at a loss because I don’t know how to file this on my taxes without incurring a penalty. However, from reading through your responses above, it seems to me that I may need to ask more questions of the plan admin as there are nuances to the FSA. One of your earlier replies stated that the FSA would switch to a non-medical (dental & vision) if someone had signed up for a concurrent HSA. In reading through the FSA documentation, I don’t see anything that says it’s expressly for non-medical or post deductible expenses. It sounds like it may also be possible to back-out my 2016 HSA contributions? Are there other questions you can recommend I ask the plan admin or other “stones” I need to look under? I just don’t want to be penalized for this and/or lose any of the funds. I really appreciate you taking the time to answer these questions.
Harry Sit says
Some employers automatically put employees who sign up for both HSA and FSA into a limited purpose FSA. It sounds like your employer didn’t. You can work with the HSA provider to withdraw the contributions as excess contributions. Make sure you mention excess contributions. They have a special procedure for it. Search for ‘excess’ in IRS Publication 969 for how to report the excess contributions on your tax return. Basically your W-2 is already reduced by your HSA contributions. Now you need to add the amount back as taxable income. In the end it’s as if you never contributed to your HSA.
Joe says
Thanks for your prompt reply. I have a follow up question as I’m looking over my account. For “excess” contributions, does it matter if it’s employer or employee based? Can I leave the employer contributions and only back out the employee contributions, therefore it would be like I had only contributed to the FSA?
Harry Sit says
It doesn’t matter. It’s all excess.
Zoie says
Hi Harry,
You claim in your article: “Second, if your health care FSA and HSA don’t overlap, you can contribute to both in the same year. For example if you have FSA with one job and you join another company that offers a high deductible plan with HSA, you can sign up for the HSA for the remaining months. If you are aggressive, you can invoke the “last month rule” and contribute the full year maximum to your HSA.”
However, there is a bogleheads forum, someone who I presume is you (under screenname tfb) responded: “If you had FSA money early in the calendar year (similar to how you had carryover money), you are not allowed to contribute to HSA later in the same calendar year.” This seems to contradict what you claimed in this article and I’m wondering what made you change your mind?
Thoughts? I’m still trying to figure out which is the correct answer.
Harry Sit says
The difference is whether you are still with the same employer. No overlap between different employers. Overlap within the same employer even if the FSA money is already spent down to zero.
June says
What if you (with FSA) are terminated from your employer mid-year, then rehired by the same employer (new contract) two months later and treated like a new hire for benefits enrollment purposes?
Harry Sit says
When you terminated the FSA also terminated. A terminated FSA does not create an overlap with an HSA later in the year.
Zoie says
Hi Harry,
Just so I’m clear on your response, you are saying:
If you had FSA with Company A *then* HSA with Company B, you can contribute to HSA as long as the coverage periods do not overlap.
If you had FSA with Company A *then* enroll in an HDHP with same company due to a qualifying event, you cannot contribute to an HSA, even if the periods do not overlap. (This is basically June’s question above).
Is that correct?
Harry Sit says
Unless the FSA is terminated, it’s active for the entire year regardless when you actually spend the money. Your “periods do not overlap” isn’t true in your second case.
Zoie says
Thanks Harry.
I think I may have pinpointed IRS language that supports your claim (finally.. I’ve been looking forever!).
In IRS Rev. Rul. 2004-45, it says:
“Section 223(a) allows a deduction for contributions to an HSA for an “eligible individual” for any month during the taxable year. Section 223(c)(1)(A) provides that an “eligible individual” means, with respect to any month, any individual who is covered under an HDHP on the first day of such month and is not, while covered under an HDHP, “covered under any health plan which is not a high deductible health plan, and which provides coverage for any benefit which is covered under the high deductible health plan.”
It’s the last part of that sentence that provides clarity– “which provides coverage for any benefit which is covered under the HDHP”.
To summarize, you’re eligible to contribute to an HSA if, while you are covered by an HDHP, you are not covered by an FSA (or other non-HDHP plan) that provides coverage for any benefit that is covered under the HDHP. Therefore, if your FSA has already terminated, and you can’t use any of the funds to pay for expenses incurred while under the HDHP, then you’re good to go.
lisainil says
I tried to read through most of the comments, so forgive me if I’m repeating an already answered question…
We had an HDHP/HSA through Mar 15, 2017 and contributed $1281.25. Husband’s new job starts April 17, 2017 and we plan on enrolling in a PPO and would like to contribute to an FSA.
What is the max we can contribute given what we’ve already contributed to the HSA?
Thanks!
Harry Sit says
To the FSA? It’s not affected by your previous HSA contribution.
LisainIL says
So, we could put the $2600 max into the FSA? I feel like that doesn’t seem right. Can you point me in the direction of a resource that would verify that?
Harry Sit says
Internal Revenue Code section 125(i).
https://www.law.cornell.edu/uscode/text/26/125#i
No reduction for partial year or any other contributions.
Walt R. says
I currently have a Blue Cross Century Preferred PPO through a local Board of Ed. On July 1, 2017, I will be switching to a Lumenos HSA. I will not be renewing my FSA which ends at the end of June 2017. I was hoping to contribute my share of the plan, $2000, in August through payroll deductions. The city will contribute $1,000 in July 2017 and $1,000 in January 2018. My current FSA expires at the end of June 2017 but we also have an FSA through my wife’s work which expires Dec. 31, 2017. It is not a limited Purpose FSA. Will I be eligible to contribute to my HSA account starting in August 2017 through pre-tax contributions through payroll or will I have to wait until Jan. 1, 2018? I have checked IRS publication HSA 969 but still not sure. Is there an amount above the total FSA contributions that we made pre-tax to the FSAs that I can utilize as a contribution to the HSA in 2017? We are probably just below the $2500 threshold in total contributions between the two FSAs. Can the city still contribute their $1,000 portion in August? If they can, will I be able to use it? Can I put in my full share of $2000 in January if I am not allowed to contribute in 2017 calendar year?
Harry Sit says
It’s covered in the last paragraph and comment #1. The city can still contribute. You will have to withdraw it as excess contribution. It’s still free money to you, just taxable. If your wife’s FSA rolls over to 2018 either by a grace period or a balance under $500, it will continue affecting your HSA contribution.
Walt R. says
Thanks, Harry. So basically, I should tell the city not to contribute until Jan. 1 and make sure all the money in my wife’s FSA is spent by the end of December, correct? I can request the city’s contribution be delayed if I choose to. Is there a limit to how much pre-tax money an individual can put into a HSA account in a calendar year above and beyond the three thousand the city would be contributing to my HSA in 2018 if the July 2017 contribution is delayed until after Jan.1, 2018?
Harry Sit says
Regardless who contributes, there is a limit on the total amount going into your HSA each year. See 2016 2017 2018 HSA Contribution Limits. If you have your employer postpone to 2018, it reduces the amount you can contribute in 2018. Mathematically it becomes a wash but you don’t have to go through the trouble of withdrawing the excess contribution made in 2017.
Zoie says
Harry, your response to Walt’s question is so interesting! At my company, the HSA is tied to the HDHP we offer– if you want to enroll in one, you have to also enroll in the other. I don’t know how common that is, for them to be attached like that. Anyway, our HSA TPA and plan sponsor have basically said that if you are covered by an FSA (such as through spouse), you are ineligible to contribute to the HSA, therefore you can’t enroll in the HDHP/HSA. Part of the reason being that even though the employee can choose to not contribute, my company provides an employer contribution that is automatic each payroll. What you’re basically saying is just because they are covered by an FSA, it doesn’t make them ineligible for the HDHP or to open an HSA. They can still get the employer contribution and just take it out as excess contribution. That totally makes sense. But seriously, isn’t our TPA supposed to know this?
Al says
Hi Harry. Apologies if I am asking a question that has been asked before (tried to diligently vet all previously asked questions).
I am currently enrolled in a HDHP which offers both general FSA and HSA that runs with a plan year July 1-Jun 30. I am single. To this point, I contributed only a small amount to the FSA ($250 per year, $20.83/month). Open enrollment is now and I would like to max contribute to an HSA instead of an FSA (and they do not offer limited FSAs). I have spent the entirety of the FSA balance as of April 2017. Am I eligible to start contributing to an HSA in July 2017 in its entirety ($3,400), some fraction of it (less the 2017 FSA component), or none at all (and have to wait until 2018)? And, to be certain, there is no way to contribute to 2016, correct?
Thanks a ton!
Harry Sit says
No way to contribute for 2016. You have 50% of the annual limit for 2017 (prorated by the number of months).
Alex says
Thanks, Harry! One last question– am I able to invoke the “Last Month Rule” in 2017 and contribute the maximum of $3,400 or is this not an option? Thanks again!
Harry Sit says
It’s an option but it also comes with a 12-month forward commitment. If you are not able to keep the commitment you pay a penalty. Sometimes it’s out of your control (job changes, employer changes plan, …). In general I don’t think it’s worth it, but if you want to take a chance it is an option.
R Patrick says
Thank you for your original article and answering so many people’s questions.
I was curious about the source of the FHA at Job 1 then HSA at Job 2. Several other articles and on Bogleheads discuss the ruling listed above: IRS Rev. Rul. 2004-45. I’m not seeing what you are saying explicitly. Several other articles state once you have a FHA you are out of luck for the HSA.
I had a FHA for January of 2017, 100 dollars was put into it. I spent that 100 dollars.
I quit that position January 31, 2017. I have a letter from HR stating that the FSA expires on my date of termination and the would only pay for expenses of January.
I then signed up for an ACA Silver plan with HSA (Omnia Silver HSA) because I want to reduce my taxable income for the ACA subsidy. I then contributed the single person max. I’m 1099 paid now for professional services. So FSA closed, and new job/self employed.
So according to all the replies above I am HSA eligible. I’m not sure how to show that to an auditor other than the pay stubs and the distribution forms.
I intend to take the last month rule and sign up next year for the same. I’m reconsidering that as there does not seem to be Bronze HSA plans. I may benefit from paying to get the excess out ASAP as it’s one month. (How I will need to figure out). Especially since we have no idea how and what the exchanges will look like or what they will cost in 2018.
Thanks for your help in advance.
Harry Sit says
Zoie in comment #45 posted the language from IRS Rev. Rul. 2004-45. Outside the last month rule, you are eligible in every month when you don’t have other coverage. The FSA does not give you coverage after it terminated. Signing up for a 12-month commitment for just one extra month isn’t worth it.
R Patrick says
Thank you for your prompt reply. The information above and then searching for a few other things actually had me find out that I am not eligible for an HSA at all because the Cost Savings Subsidies push the deductible below what an HDHP would allow HSA contributions. Even of the plan says HSA on it.
So I am pulling the money out now. I found another site with how to fix that paperwork. Fortunately it’s only been in there for about 3 days.
You saved me from making a mistake that maybe I would have caught. Maybe the IRS would have caught. Three years later.
Caroline says
I have a question since you state I cannot contribute in the same month but can have both a HSA and FHSA in the same fiscal year. Would this work with plan years changing? I cannot find this exemption on the irs.gov website.
Harry Sit says
It depends on how the plan year changed. Did the FSA coverage end?
Caroline says
Thanks Harry. I have been busy at work. Plan year is June-May and the HSA ended at the end of May and was hoping to select Health FSA for the new plan year. I had been told I could by the benefits department, we use a PEO, I even asked multiple times to make sure as long as the HSA was concluded I could get a FSA and just have the money sit in the HSA for future plans/retirements. Then when I called back with the dollar amount they said I was only eligible for limited.
Harry Sit says
No problem with choosing health care FSA from June onward and it doesn’t have to be a limited purpose FSA. However, because you are only eligible for HSA for 5 months in this calendar year, your HSA contribution limit for this year is 5/12 of the normal annual limit. If you and your employer contributed more, you will have to work with your HSA provider to withdraw the excess.
June says
Just to be clear, would the 5/12 limit would be alleviated by 1 year plus one month rule?
Harry Sit says
June – The “last month rule” says if you are eligible for HSA on December 1 and you commit to stay eligible for the entire following year, you can contribute to HSA at the full limit for the current year. In Caroline’s case, if I understand correctly, she’s coming off an HSA eligible plan. She won’t be eligible for HSA on December 1. Therefore the “last month rule” doesn’t apply.
June says
Yes, you are right, sorry. In the opposite situation, (1) if someone’s FSA plan year ended mid-calendar year and they then signed up for an HAS-eligible plan, they could contribute the full amount to the HSA for that same year if they were eligible in December and the following year? (2) If the answer is yes and that was the case, there would be no need to withdraw excess contributions for the first year (half HSA), correct? (I understand that it is risky to rely on the Dec + one year rule, but I want to clarify it).
Harry Sit says
June – Only if the FSA truly ended — no expenses incurred after the end date can be ever reimbursed by the FSA, not just because the money in the FSA is already fully spent. If any money left in the FSA can still be used for expenses in December, the employee isn’t eligible for HSA in December, and therefore “last month rule” doesn’t apply.
Josh says
Didn’t see my situation in the comments above (apologies if I missed it)..
I was on my wife’s insurance and we both contributed to a medical FSA through our respective employers. In June, my employer changed insurance to an HDHP with an HSA where the company contributes $3K/yr. We chose to make the switch from my wife’s insurance to my company’s insurance. Her employer is saying they will not stop deducting her FSA contributions even though she is now in an HSA through my insurance. Do I have options to stop her FSA contributions or am I stuck? I was able to stop my FSA deductions since it was my company that switched everything up mid year.
Harry Sit says
She can ask her employer to explain why and also clarify whether not stopping her FSA contributions also means (a) she can still use the FSA money to cover expenses after her changing insurance to yours or (b) the continued deductions only make up for the total amount she signed up for (as in “12 easy payments”) but the eligible expenses must be incurred before she changed insurance.
The latter point affects whether the two of you are eligible to contribute to the HSA or receive contribution from your employer. If the answer is (a), you will have to withdraw the HSA contributions from you and your employer as excess contributions. If the answer is (b) you may have some FSA money that you can’t use because you didn’t have enough expenses before the change.
TB7 says
The easier answer would have been to remind your wife’s employer that she was able to make changes to her plan due to a qualified life event. At that point she was eligible to make changes to her benefits, including the FSA.
Sue says
Question – I am turning 65 and no longer eligible to contribute to my HSA bank account with my employer. My employer also has an FSA, since I can no longer contribute to the HSA , can I enroll in the FSA mid year and contribute to an FSA?
Harry Sit says
Enrolling in Medicare makes you ineligible for HSA contribution. If you turn 65 but you don’t enroll in Medicare you are still eligible. If you enrolled in Medicare, it counts as a qualifying life event. If you want to request a change to FSA mid-year you must notify your employer with 30 days of the life event.
MicaelaA says
This is brilliant. I so appreciate the discussion.
I’m 63 next month and plan to retire from this employer. Finally looking at their HDHP and an HSA.
Our plan year switched from Aug 15 to Oct 1 this year, so we were offered a FSA that terminates Sept 30 for those 45 days after our regular year (in which I also had an FSA). As I move to the HDHP Oct. 1, I will open an HSA. I can fund it for 2017 on Oct. 2. Must I do the 3/12’s only, or can I do the full $6750 (plus $1000 due to age=$7750)?
Am I missing something? I think the answer is in #53 above, but would like confirmation.
Harry Sit says
That’s correct. 3/12th without invoking the last month rule. Full year with the last month rule but it comes with the forward 1-year commitment and the ramifications if you fail the commitment, which isn’t necessarily 100% in your control.
MicaelaA says
Thanks!
Bruce says
I’m switching to an HSA from an HRA plan on Oct. 1. I had $2500 in an FSA before under the HRA plan, of which $1500 remain. The FSA has a grace period for expenses until Dec. 15. Under the IRS rules, will I not be able to spend the $1500 for medical expenses during the grace period? My HR dept. told me to call an accountant, they don’t do taxes.
Harry Sit says
As your employer what happens to the FSA after you choose HSA on Oct. 1. If it stays as a general purpose FSA, you can spend the money until the end of the grace period but you won’t be eligible for HSA contributions for 2017. If it converts to a limited purpose HSA, you can spend the money until the end of the grace period but only on dental and vision expenses, but you will be eligible for HSA contributions for Oct. – Dec. 2017. Only your employer can tell you whether the FSA stays as general purpose or it converts to limited purpose.
Bruce says
Thank you for your prompt response, Harry. Excellent forum, by the way!
SW says
I contributed to an FSA plan for 2017 for $2,600. The balance is $0. Left the company March 6. Coverage was through the end of March.
I left that employer and joined a new employer and enrolled in HSA for $2,600. Became eligible on March 13.
Am I subject to a pro-rated limit on my HSA? What is the total limit I can contribute to the HSA for 2017?
Harry Sit says
Pro-rated 9 months April – December before the last month rule. Single coverage $3,400 * 9 / 12 = $2,550. Higher limit for family coverage and age 55 or over.
SW says
I should make a correction to #60 above. I elected $2,600 for the FSA plan. I contributed $500. The balance of the of the FSA plan before I left the employer was $0.
Dan says
I skimmed through these posts and didn’t find anything that fit my situation. I have an HSA that currently has no more funds in it. I have contributed to it in this tax year but eventually stopped and withdrew all the money. I plan on closing the HSA since I no longer use it. I am starting a new job that offers an FSA, but I’m not sure if I would qualify for a general purpose FSA or limited. So my question is this: if I close my HSA before I make my first contribution to the FSA, can I sign up for a general purpose FSA? Or do I only qualify for a limited FSA because I had contributed to an HSA earlier in the year? I won’t have a FSA overlapping with an HSA in the same year, but I didn’t know if having an HSA for part of the year leaves you only qualifying for a limited FSA or if you’re free to sign up for a general purpose FSA.
Harry Sit says
See reply to Caroline in comment 53.
Andy says
Hello,
My wife was contributing to a general purpose FSA, but she resigned from her job in Jan. 2017 to become a stay at home mom. So beginning Feb. 2017, I got my wife and child enrolled in my employer sponsored HDHP. Am I allowed to contribute 11/12th (Feb. through Dec. 2017) of the max allowed for family in my HSA? Or, because my wife had FSA for one month, it disallows me to contribute to the HSA account altogether?
Harry Sit says
Yes you can contribute 11/12th. It’s covered in the fourth paragraph.
Josh says
I currently (2017 year health plan) have a PPO health plan with an FSA, with $950 remaining in the FSA. For 2018, I am considering switching to the High Deductible plan which has an HSA. My company allows me to rollover my unused FSA dollars from 2017 to 2018, as long as the services are incurred before March 15, 2018. If I decide to change to the High Deductible plan for 2018 and start using an HSA, can I use my rolled over FSA funds in conjunction with the HSA? The reason I ask is because I want to get Lasik eye surgery in early 2018, so I am hoping I can use my $950 rolled over FSA funds from 2017, plus the new HSA that would start in 2018 should I choose to go that plan route. If I get the surgery in early 2018, can I combine FSA rollover from prior year 2017 with HSA from current year 2018 for the same medical expense (Lasik)?
Harry Sit says
Ask your employer whether the FSA dollars roll over as a general purpose FSA or a limited purpose FSA. If general purpose, your HSA contribution for 2018 will be limited to 9/12th of the annual limit. If limited purpose, the dollars rolled over will be limited to only dental and vision, which is OK because you want to use them for Lasik, but your HSA contributions for 2018 will be the full annual limit. Either way you are able to use the FSA dollars for Lasik.
Josh says
Thanks for the reply. I am also not sure if Lasik is considered a limited FSA expense or general purpose. I will check with my employer as to what purpose type the rolled over FSA is considered. I also posted this question on https://www.reddit.com/r/personalfinance/comments/7adokg/using_fsa_rollover_from_prior_year_hsa_from/ and a user there is saying that the rolled over amount can’t be used for surgery.
Caroline says
I used my Limited FSA for Lasik, it’s vision, not medical. We were asking about having a health FSA for part of the year and HSA for other part, which is different from the Limited FSA allowed in addition to HSA.
Mrbasicshark says
What if we did not sign up or was not eligible for an HSA so we signed up for an FSA. However later in the year the Employer provided some HSA for use to use (not taking from our check just freely provided by employer). How would that work then?
Harry Sit says
If the FSA didn’t end, you can work with the HSA provider to withdraw the employer contribution to the HSA as excess contribution. You will pay tax on the money withdrawn but it’s still free money from the employer.
Josh says
I currently have an FSA for 2017 but will be switching to an HSA in 2018. My company has an FSA rollover period that rolls over from 2017 and the leftover funds can be used up until 3/15/2018. The FSA is general purpose. Since I have an FSA rollover, I am not allowed to start contributing to my HSA until 4/1/2018, because I can’t contribute to my HSA while the FSA is still active during the rollover. My question is, if I have a surgery in January 2018, can I pay for part of the surgery with my FSA rollover money, and then pay off the remaining balance of the surgery cost with my HSA in April once I am allowed to contribute to it? Or does the HSA not let you pay for services that occurred before I was eligible to start contributing to it (4/1/2018)? Basically I want to use a combination of the FSA rollover money AND the HSA money for the same surgery.
To phrase a different way, will they deny my HSA reimbrusement for a surgery that occurred in January and say that because I wasn’t eligible to contribute to my HSA until April, that I can’t use the money for anything that happened before April?
Harry Sit says
The expenses must be incurred after the HSA is opened. If you currently have HSA elsewhere or if you had HSA in the previous 18 months before your new HSA is opened, the “opened” date of your new HSA is backdated. If this will be your first HSA ever, ask your employer or the HSA provider whether your HSA is considered to be opened on January 1 even though you don’t contribute to it until later.
Kdm says
Thanks. Harry. After a little more digging It looks like it may have been an HIA not an HSA. Not sure though. Got to dig even more to see. Thanks again for your reply and this article. We never realized the restrictions on these accounts till reading this.
Amy says
I currently have an FSA that is not limited (my current insurance is not an HDHP). My plan year runs from Jan. 1, 2017-Dec. 31, 2017 for the FSA. I have 486 dollars left to use in my FSA. My employer is switching to a High Deductible Health Plan on July 1, 2018 and will be making a contribution to an HSA for us. I have a 3 month grace period (Jan-March 2018) to use the remainder of my FSA up. If I use the rollover can I still open the HSA in July of 2018?
The provider for my FSA says that I can use the rollover in 2018 and still open up an HSA in 2018. I’m not sure I believe him. I am not making any new contributions to the FSA in 2018, it would simply be using up the money I contributed in 2017.
Harry Sit says
You can still open the HSA in July 2018 because your FSA doesn’t overlap with it when the FSA ends in March 2018 whether you still have money in it by that time. However the maximum contribution from both you and your employer to the HSA for 2018 will be half of the normal annual limit because you will only have HDHP for half a year.
jason says
I currently do not have either an FSA or HSA.
To pay for lasik in early March 2018, I am thinking about getting a high deductible health insurance plan with HSA and a Limited Expense Health Care FSA (limited purpose FSA). The funds available through FSA ( maximum amount of $2,650 available on day one of plan year) will not be sufficient to cover the cost of lasik. May I pay for the remaining balance with the available balance from the newly established HSA?
Is there any IRS rule against or foreseen complication resulting from such practice?
Thanks,
Jason
Harry Sit says
That works perfectly.
jason says
Thanks. I just wanted to make sure that using both FSA and HSA to pay for a single procedure in the manner described is not double-dipping.
Doria says
I have an HSA through my employer. My employer also offers a flex plan. I know I can do dental and vision expenses for this. However what is the “other eligible expenses?” In specific does that include supplemental insurance like accidental, STD, LTD, Cancer premiums…. I have been searching for this information in guidelines and I’m struggling to find anything.
“A limited purpose FSA covers dental, vision, and other eligible expenses, but not medical or prescription drugs.Nov 24, 2015”
Harry Sit says
From IRS Publication 969, page 4:
You can have additional insurance that provides benefits only for the following items:
– Liabilities incurred under workers’ compensation laws, tort liabilities, or liabilities related to ownership or use of property.
– A specific disease or illness.
– A fixed amount per day (or other period) of hospitalization.
– Accidents
– Disability
– Dental care
– Vision care
– Long-term care
The limited-purpose FSA can pay for expenses on the list above except long-term care.
Doria says
I understand you can have additional insurance. Can you flex the cost of the premiums for cancer insurance? for accidental insurance? For example, we purchased accidental insurance from a different company from a previous employer of my husband. These premiums are taken out of our checking account each month. Can I submit this premium as a flex plan expense?
Harry Sit says
Insurance premiums are not eligible expenses for a Flexible Spending Account.
Corrine says
In January 2017 I enrolled in an FSA. I also have a VEBA(HRA) through an employer. In July I switched to an HDHP with HSA instead of a VEBA. I understood that the funds in my VEBA now become limited. According to the FSA provider, the funds in my FSA also became limited when money was deposited into my HSA in September. I had some medical expenses in August. Does this mean the FSA is limited all the way back to January, or just starting in September when the HSA was funded? Or should I not have put funds into the HSA and do an excess contribution withdrawal? If so, does this have to be done by 12/31?
Harry Sit says
If the FSA provider told you the account became limited in September then that’s the date of the switch. It goes by the service date. Ask your FSA provider about your medical expense in August.
Corrine says
The FSA provider told me it became a limited account as soon as funds were deposited into the HSA, however, they also told me it was limited for the entire year. I didn’t know if there was an option to be the whole year or just as soon as funds were deposited, what exactly the law is.
Harry Sit says
The law says a general purpose FSA can turn into a limited purpose FSA on an effective date. It doesn’t go backwards.
Zachary Fair says
I have a general-purpose FSA through my employer of which I contributed and used the full $2500 throughout the year. My wife took a job in August and began contributing to an HSA unbeknownst to me. I understand that that is not allowed. I need to know the best way to deal with it. I read all your comments above and it sounds like I need to contact her HSA provider and withdraw ‘excess’ contributions. In your reply to comment #41, you referenced IRS publication 969, search ‘excess’. It says the following:
———————->
Excess contributions. You will have excess contributions if the contributions to your HSA for the year are greater than the limits discussed earlier. Excess contributions aren’t deductible. Excess contributions made by your employer are included in your gross income. If the excess contribution isn’t included in box 1 of Form W-2, you must report the excess as “Other income” on your tax return.
Generally, you must pay a 6% excise tax on excess contributions. See Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, to figure the excise tax. The excise tax applies to each tax year the excess contribution remains in the account.
You may withdraw some or all of the excess contributions and avoid paying the excise tax on the amount withdrawn if you meet the following conditions.
You withdraw the excess contributions by the due date, including extensions, of your tax return for the year the contributions were made.
You withdraw any income earned on the withdrawn contributions and include the earnings in “Other income” on your tax return for the year you withdraw the contributions and earnings.
*CAUTION*
If you fail to remain an eligible individual during any of the testing periods, discussed earlier, the amount you have to include in income isn’t an excess contribution. If you withdraw any of those amounts, the amount is treated the same as any other distribution from an HSA, discussed later.
<———————-
My concern is the last bit. Would my circumstances have equated to "fail(ing) to remain eligible during any of the testing periods"? Whichever the case may be, am I best off withdrawing the funds regardless ASAP so they don't effect 2018 as well, or if I am going to be penalized anyway, should I just leave the funds where they are and use them toward health care expenses anyway?
Also, it doesn't seem logical or prudent, but in comment 8, Randall said "To note, the IRS does not have a method of accounting for your FSA contributions and activity, as this is not reported on your federal taxes." Is it safe to assume this comment should not contribute to the decision about how best to resolve my issue? Thanks ahead of time.
Harry Sit says
The testing period refers to having used the last-month rule and not keeping up with the required commitment. It doesn’t apply to your situation. Even though it’s true your wife’s ineligibility is hard to detect, now that you know it, I would still do it by the book and not sweep it under the carpet. If you withdraw the excess now, you are not penalized. If she contributed as pre-tax through her paycheck, paying tax on the withdrawn amount just makes it as if she didn’t contribute in the first place.
Zachary Fair says
I contacted her HSA admin. The first associate assured me that HSA and FSA accounts are able to be used together so long as I didn’t also have a non-HDHP associated with my FSA, which I do not. Suspecting this to be incorrect, I called back and was told by a different associate that my wife is in fact ineligible. I was referred to an excess contribution withdrawal form that I have to fax in and wait two weeks for processing. So it will unavoidably take place in 2018, albeit before my tax due date. Hopefully that will not incur any tax penalties.
I was informed that they have an option to simply apply the excess contribution to my 2018 funds (my FSA will be closed for 2018, with $0 balance), as opposed to receiving a check. She said that this would not trigger any additional income tax requirements for my 2017 taxes because the funds would be applied directly to my 2018 contributions. It would simply count toward my max limit for that year. Are you familiar with this option? I am skeptical due to the misinformation that I received in the first call.
Harry Sit says
I would just just do the straight withdrawal of excess and keep it separate from the 2018 contributions. The less complicated, more obvious, and easier to explain the better.
Sara says
I had an HSA for the whole year of 2017, but became ineligible on Jan 1, 2018 due to the company adding an HRA and FSA. I have read that you can still contribute to your prior year HSA up to the tax filing deadline of the next year. So I have until April 18th, 2018 or thereabouts to contribute up to the max HSA contribution for 2017. Can I do this, but have an general FSA for 2018? The contributions would run concurrently but would be for different tax years. Please advise!!
Harry Sit says
If you and your employer didn’t contribute to the maximum limit in 2017 you can still contribute the difference yourself up to April 17, 2018 (not April 18). It doesn’t matter you became ineligible in 2018 when you are contributing for the previous year.
Sara says
Thank you Harry. It is good to know I can do this on my own. If my employer is willing, can I assume they can also make the 2017 HSA pretax deductions for me , and still take the pre-tax deductions for the 2018 FSA?
Harry Sit says
The employer isn’t able to do it now for the previous year. You will have to do it directly with the HSA provider and then take a deduction yourself on your tax return.
Susan says
I have read all the Q & A and I’m still not sure I know the answer to my question. –Due to a debit card not being run for the correct amount on a vision claim, our general-purpose FSA had $1.47 remaining in it on 12/31/17. I filed for the remainder of the vision claim on 1/31/18 to withdraw the $1.47. Does this mean we are only allowed to contribute 9/12 or the eligible amount for our HSA plan that began on 1/1/18? The FSA did not convert to a limited-use FSA.
I appreciate all the helpful information on this site.
Harry Sit says
It doesn’t matter how much money the FSA had on 12/31. The key question is whether it provides any coverage for services done in 2018. If the money is only available for claims with a service date in the previous year, your HSA eligibility isn’t affected.
Susan says
Thank you so much for that clarification. Much appreciated!
Cam says
On 3/1/2018 my spouse (who doesn’t work or have insurance coverage anymore) and I got married and I added her to my healthcare plan. Prior to this I had an HDHP with an HSA. I used this life event to change to a non-HDHP plan, therefore making me ineligible for the HSA. Due to this I also elected to open an FSA at the same time. My benefits email states that this is all effective as of 3/1/2018, but payroll has already processed an HSA contribution that will go though on the 6th. I assume, based on reading everything above, that I will need to withdraw the last HSA contribution and pay taxes on it as part of my income next year in order to keep everything lawful. Is that correct? Is there anything else I need to do because I have switched from an HSA to an FSA? Thanks in advance.
Harry Sit says
The HSA contribution is limited by dollars not by time. By having the HSA in the first two months of the year, you are eligible to contribute 2/12th of the annual limit. As long as your total for the year (including any amount contributed by your employer) doesn’t exceed the limit, it doesn’t matter when you contributed.
Paul W. says
If I have both a HSA and a Limited-Purpose FSA, when requesting reimbursement for a specific qualified expense that will zero out the FSA balance, can I then request reimbursement for the remaining amount from my HSA? For example, say I have $100 remaining in my FSA for the year and my HSA has $500, and I purchase a $300 pair of glasses. I can submit the $300 expense to my FSA and be reimbursed for $100 (the remaining FSA balance), but can I then also request reimbursement from my HSA for $200 (the remaining un-reimbursed glasses expense)? I assume this is allowed but can find no IRS guidance in researching this particular scenario.
Harry Sit says
Yes. The requirement is only your HSA distribution covers qualified medical expenses not reimbursed elsewhere.
Paul W. says
That’s what I thought, thanks for the reply.
Brooke says
Hi, we have an HSA with our HDHS but that coverage ends 3/31/18. We contributed 1712.50 to the HSA for 2018. My husband’s new insurance isn’t high deductible and they have an FSA. Can we contribute $2650 to the FSA for 2018 or only (2650/12*9)=$1987.50?
Thank you!!
Harry Sit says
The law does not require prorating the FSA contributions. You employer may set a lower limit.
Chrissie Larson says
We had an HSA last year with the high deductible plan. This year we have the FSA w/o the HDHP. we are 56 and I made an additional contribution to the HSA in January via a catch up contribution. Can I use both the HSA & FSA for 2018 expenses ? Very confusing. Thanks!
Harry Sit says
Assuming your HSA contribution was for last year when you had the HSA-eligible plan, once the money is in the HSA, it can be used for qualified medical expenses regardless what insurance you currently have or whether you have an FSA. You just can’t double dip with the same expense already reimbursed elsewhere. See comment #80 above.
Val says
Thanks for the informative post! Didn’t see this one covered:
I have a stepson who is covered by both of his families. My family is on a HDHP, HSA-eligible plan (with employer contribution), and my stepson’s mom is switching to a PPO, low-deductible plan with an FSA. The mom’s HR is saying that we can’t have both for my stepson due to this rule.
Our family has other children and would qualify for the “family” HSA limit regardless of whether or not my stepson was taken into account. No one else in my family has additional health insurance. All medical expenses are split 50/50 between parents.
Thoughts?
Harry Sit says
The HSA eligibility is checked on the person who contributes, not on the other family members. As long as you have HSA-eligible plan and nothing else, whether other family members have other coverage or not doesn’t matter.
Val says
Thanks for sharing your thoughts . . . so the contribution limit be the family limit, I assume?
Harry Sit says
Yes.
Kristi says
Currently, I have a non-HDHP with a FSA that covers me and my four children.
My husband is covered by his employer with a non-HDHP.
On July 1st, I plan to switch myself and my children to a HDHP with HSA.
What are my contribution limits for the HSA? At the end of June, I will have contributed $1200 to my FSA (which have already been spent on braces, leaving me with a zero FSA balance.)
Am I able to contribute up to the family limit of $6850 since I am covering my children?
Would the limit be lower since I am only contributing for 6 months?
And, is that limit lower since I have already contributed the $1200 to my FSA? And, what are total limits in future limits with limited FSA and HSA?
Harry Sit says
If your switch is with the same employer, ask your employer what happens to your FSA. If it terminates or it turns into a limited purpose FSA, you can contribute to the HSA up to 50% of $6,850 (6 out of 12 months). If you’d like to invoke the last-month rule and commit to the HDHP for another year, you can contribute the full $6,850, which I don’t recommend, but it’s an option.
Peg says
So if I have a PPO plan, and my husband has a HDHP plan ( separate single coverage thru our individual employers), the only options are for me to have a FSA, OR for my husband to have a SINGLE HSA??? He can’t deduct the FAMILY amt??? That doesn’t seem fair.
Harry Sit says
That’s correct. Fair or not, they made the law that way.
Emily says
My husband is starting a new job next Monday, April 30th. My husband and son are currently on my insurance through my employer, a PPO with FSA, since his current employer does not offer health insurance. His new employer offers two HDHP plans with HSA (no other options). He will need to sign up for the HDHP plan since my employer charges a surcharge for spouses who are covered by other plans. What are our options for the FSA and HSA? Can I terminate contributions to the FSA as of April 30 and then my husband can contribute 8/12 of the annual limit to the HSA? I have been reimbursed more from the FSA than I’ve contributed from my paycheck so far this year. Will I be required to pay that back to my company? I guess the other option is to continue the FSA for the rest of the year and withdraw the new employer’s contribution to the HSA as excess? Thanks in advance.
Harry Sit says
Because you will stay on your insurance, I don’t think your employer will let you terminate contributions to the FSA, but please check with your employer.
Daved and Confused says
Question: My wife and I are on her HDHP (HSA eligible). We mistakenly enrolled in both the HSA & general (non-limited) FSA for 2018. We are on track to contribute the maximum to the HSA ($6200 in our contributions, $700 by employer). For the FSA, we are on track to contribute $1000 for the year. We have not made any claims or used the FSA funds at all so far this calendar year. If the employer allows, could we stop contributing to FSA now and let the money go *poof* at the end of the year and keep the HSA fully maxed out? If we never take an FSA payout, is it as if we never had it? I know it’s a waste of a few hundred dollars, but it seems like this may be the easiest solution vs. trying to reverse the much larger HSA contributions (both ours & employers) and somehow pay FICA & income tax the HSA. It seems like a nightmare to deal with HR trying to reverse/unwind the HSA, especially since the HSA has been fully invested through our HSA custodian (and is currently below what we contributed). Any tips would be appreciated.
Harry Sit says
I don’t think the employer will allow you to stop contributing to the FSA or disclaim it. When you withdraw the HSA contributions as excess contributions, you contact the custodian directly, not through HR.
Kathy says
Husband and wife both enrolled in husband’s employer’s traditional PPO plan. Wife got a new job and enrolled as a single coverage in her employer’s HDHP with HSA. Effective date is 6/1/2018. We removed the wife off our PPO plan effective 6/1/2018. All good so far. The issue is the FSA plan we offer. It’s a general use FSA plan and husband has only used a small portion of it. I understand this needs to either be changed to a limited use (dental & vision) FSA or his wife can’t contribute to her new HSA plan. Knowing the wife is already signed up for the HDHP and HSA plan, we need to change the husband to a limiited use FSA. My question is this: Can he change (reduce) the dollar amount of his annual election now at midyear? He didn’t know his wife would get a new job with insurance benefits when he signed up for our FSA plan and he made his election based on his situation at the time.
Harry Sit says
The IRS allows it as a change in employment status. Your plan may or may not allow it. See Under what circumstances can employees make mid-year election changes to their health Flexible Spending Account? from Society of Human Resource Management.
Kathy says
Thanks. Do you have the IRS publication that specifies this? I can’t seem to find anything.
Harry Sit says
See 26 CFR 1.125-4 – Permitted election changes. Just the IRS allowing it isn’t enough. Your plan document also has to allow it.
Lisa H says
Thank you for this informative thread… I read through all the comments and didn’t see a clear answer to my situation. Due to employer challenges, we were covered by a family HDHP in January and February and contributed $2100 to our HSA. We were again enrolled in a HDHP (through the ACA marketplace) in April 2018 but did not make additional contributions (no insurance coverage in March or May). We have used all the of the money in our HSA to reimburse for medical expenses incurred in January. From reading the above comments, our limit to contribute for 2018 is 3/12 annual limit, or $1725. How do we report the extra $375 that we should not have contributed (since we already used it, we can’t remove it as an excess contribution). We have a new non-HDHP since June 1, 2018. If our employer will allow it, my understanding is that we can open a general use FSA and contribute the maximum allowed amount ($2650) but can only use that money for expenses incurred AFTER the FSA is opened, not to reimburse any expenses incurred before then?
Teresa In Education says
I am an educator for a public school. My employer offers a HDHP ($5,000). The school district currently frontloads $4,000 into an HSA. Can my employer also put an additional $1,000 into a post deductible FSA? This would only be utilized if my medical expenses exceed $4,000. Also, would the $1,000 placed in the FSA revert back to the employer if not used? Thank you for your consideration.
Harry Sit says
Yes post deductible FSA is allowed in conjunction with HSA. It can also be used for dental and vision. Please ask your employer what happens to any unspent money.
Lane says
I got bad advice from my company’s HR department. I was told that I could terminate my FSA when my wife’s employer switched us from a PPO to a HDHP with HSA. We are covered under my wife’s health plan. I asked what documentation I needed to provide and was told that nothing could be done until the new plan took effect – July 1. On July 2 I called the benefits administrator to tell them that the new plan had taken effect and that I wanted to cancel the FSA because we can’t contribute to FSA and HSA at same time. I’m now told that our plan only allows changes to FSA at enrollment periods. What are my options? What kind of penalty am I looking at for having both an FSA and HSA?
Harry Sit says
If you can’t terminate your FSA, you just need to withdraw the HSA money as excess contributions. Any money her employer contributed, now withdrawn, is yours to keep, but taxable, just like her salary. You still come out ahead. Any money she contributed herself becomes taxable, just as if she didn’t contribute in the first place. You are not penalized there. Be sure to work with the HSA provider and follow their special procedure for withdrawing excess contributions.
Kent says
I am enrolled in an HSA and contributing 1/1/18 – 7/31/18 and enrolled in an Limited FSA for same period. I am changing locations within my employer and the HDHP + HSA is no longer eligible, so I have to enroll in the PPO plan as of 8/1/18.
Am I eligible /what ruling enables me to convert my limited FSA to a general or full purpose FSA as of 8/1/18? Or do I have to keep it limited for the remaining of the year?
Harry Sit says
The IRS no longer requires that your FSA be limited to dental and vision. Please check with your employer to see if the employer allows lifting the limitation. The employer can be more restrictive than the IRS.
Caroline says
Harry, when did they change this? This https://www.irs.gov/publications/p969#en_US_2017_publink1000204042 dated March 2018 still says it needs to be limited if you are contributing to both.
Harry Sit says
Caroline – After Kent stops being covered under an HDHP on 8/1/2018, he also isn’t eligible for contributing to an HSA for the remainder of the year. He’s not contributing to both after 8/1/2018.
Stella says
I have 2 jobs and signed up for insurance on both (long story for another day). Job 1 has an HRA which I used to pay deductibles and medical expenses . Job 2 has an HSA (me and employer contribute) which I have used occasionally when I forgot my HRA card. I fear I messed up with my with my taxes. What can I do?
Tiffani says
My husband had an unexpected job offer & will be changing employers next month, with a start date of 2/15. Due to this change we have a number of moving parts that I’m trying to ensure we get correct.
CURRENT: He has family coverage via an HMO with an FSA that we are funding for $2650* in 2019. Coverage will end on 2/28/19.
*Our FSA was funded fully solely due to orthodontia needs this year. We’re going to move treatment up to start at the beginning of February so we don’t lose the $500+ we’ve already contributed. Since we’re able to utilize the full amount immediately this will essentially be like getting a $2000 bonus.
NEW: Family coverage via a HDHP with HSA plan. New employer adds $2000 to the HSA account for employees. Coverage will begin on 3/1/2019.
My questions are these:
1) Are we able to contribute to the HSA in 2019? From reading previous comments & IRS document I believe that since the FSA (terminated 2/28) and HSA (effective 3/1) don’t overlap, then we will be able to contribute into the HSA for 2019.
2) If we can contribute to the HSA in 2019, are we eligible to contribute the full amount (minus employers contributions) for 2019 OR are we only eligible for 10/12 of the year?
Harry Sit says
1) He is eligible because the FSA and HSA don’t overlap.
2) He is eligible for 10/12th of the year if he continues the family coverage to the end of the year. He can invoke the last month rule to get additional 2/12th but that comes with strings attached. If he changes job or insurance again next year it can bring additional complications.
Mary Beverlin says
Hi! Husband has HDHP through employer. Contributed to HSA ($7900 – he is 56) and LPFSA ($2600). W2 Box 12 says W$10,500. Form 5498-SA is $7900. When attempting to file taxes it says we overpaid $2600 and will pay 6% tax…it also changes our refund by $500. Am I correct that the $2600 should not have been included in box 12? I have looked on IRS website for verification but nothing found that is specific. Thanks!
Harry Sit says
You are correct. Code W is specifically for HSA. Please contact the employer to have the W-2 corrected. See IRS instructions for W-2 (page 29):
https://www.irs.gov/pub/irs-pdf/iw2w3.pdf
Mary Beverlin says
Thank you. We contacted them two weeks ago and again yesterday. Same response…they’ll look into it and call us. They haven’t. I did read on the IRS website they have until the end of February to attemt a solution and then we can call IRS and they will contact employer. This is a large auto manufacturer. Very frustrating. Thank for confirming.
Falah says
in 2018 i had a hsa from jan through July with my previous employer. I started my new employer in August and they offered a fsa account. Based on this can i still contribute to my hsa today through post tax contributions since i haven’t contributed the max allowed. If i understand correctly but please correct:
Max contr allowed: $6900/12*7=$4025
Ytd contribution: $1000
Does this mean i can still contribute $3025 before tax is due to my hsa account even with having an fsa account now?
Harry Sit says
Yes. Be sure to check the box on the contribution form to say it’s for the previous year and be sure to take the tax deduction for this contribution on your tax return.
Falah says
Awesome. Thanks for the quick response. This is so helpful.
JR says
Hi Harry – Similar scenario as post #79… Entire family enrolled in my medical coverage and HSA. Making small contributions every paycheck required to get company match (which posts quarterly). Wife took a new job, signed up for her own insurance and a general FSA with small payroll deductions. Her coverage/FSA begins April 1st but it’s too late to cancel. We can/will cancel at next open enrollment which will close out the FSA completely effective September 1st. Therefore, do I need to take any corrective action given that the combined HSA contributions between myself and my employer will only total around $1,200 for the entirety of 2019 (again, spread evenly throughout the year – mine every paycheck, theirs quarterly)? I understand that for the five months I’m covered by my wife’s FSA I’m not HSA eligible making my total contribution limit 7/12 of the normal max. Given that I’m not exceeding this even though small HSA contributions would be going in during the ‘not eligible’ window, is any corrective action necessary? If so, the wrinkle is that even if I drop my contributions to zero, it’s too late to stop the associated quarterly match from my employer for what I’ve already contributed in 2019. So even if I stop today, they will match what I’ve already contributed to it this quarter and deposit it as of my check of April 5th (4 days into the effective timeframe of my wife’s FSA). So do I need to pull that match money out as excess? It seems unnecessary since I’m far below the annual HSA contribution limit and can put it right back in (in the form of increasing my contribution amount) once the FSA is shut down on Sept 1st… As long as I stay below the 7/12 amount. Thanks for your insights!
Harry Sit says
If the total HSA contributions for the year will be under the recalculated limit, no need to withdraw. It sounds like you still have other dependents covered by the plan after your wife took the new job. If you are down to just yourself in the HSA-eligible plan you calculate your limit as single for September to December.
Jess says
Hi Harry,
For year 2019, I contribute to FSA per my employer from my paycheck. I had underestimated my medical related expenses, thus I’ve used up my FSA contribution already for 2019 in medical reimbursement. I do have HSA from previous years’ contributions. For the remaining of this year, while I’m still in the FSA-eligible plan, would I be able to get reimbursement for this year’s remaining medical expense via HSA if I save the receipts? Want to confirm if I can get HSA reimbursement later for medical costs incurred while I’m on FSA Plan. I assume this won’t be an issue but just to ensure. I may plan to let my HSA grow in index fund, save medical receipts, and claim reimbursement years later. Thanks for your time.
Harry Sit says
You can still use existing HSA money. You just can’t add new money to the HSA.
Falah says
Hoping you can help me or direct me to where I can get the answer on if the specific items below are HSA eligible.
– diaper cream
– diapers
– feminine product like pads and panty liners
– multivitimans
– baby formula specifically eleCare junior toddler formula
Harry Sit says
Google “HSA eligible expenses.” Those items are not eligible.
Gregg says
Harry,
Thanks for this article and interesting to note you are still getting questions after a couple of years. Here is my situation (all plans mentioned run on a calendar year). My wife quit her job and had carried the medical insurance as well as having an FSA. I currently have a non-limited FSA as well (probably wasn’t supposed to do that) but now would like to pick up my insurance based on the qualifying event. We offer an HSA where I work. Am I able to stop my current FSA and elect the HSA for the current plan year based on the qualifying event? If so, what is the max I can contribute to my family HSA for 2019? With respect to the FSA that would be cancelled mid-year (probably June 30th), would I be able to recover expenses from the FSA as long as the care is provided prior to June 30th?
Harry Sit says
You have to ask your employer whether they allow you to stop the FSA. I’m guessing no. If you are able to stop the FSA on 6/30, you can contribute to the HSA at either 1/2 the annual limit (prorated July to December) or the full annual limit if you invoke the “last-month rule” with a commitment to stay with an HSA-eligible plan through 12/31 of the following year. If you are able to stop the FSA you are still able to make claims for expenses incurred before the end date.
Harry Sit says
If your employer doesn’t allow you to stop the FSA, also ask if they are able to turn your FSA into a limited-purpose FSA after you enroll in the HSA-eligible plan.
Gregg says
Harry,
That is interesting. My employer seems to be telling me to consult with a tax adviser and noting the IRC 125 code section with respect to stopping the FSA mid-year. In another words, does the IRC allow for this? There is a consistency rule which I have a hard time interpreting, but if the IRS allows for this and no “rules” are broken then I believe they will allow for it to happen.
Thanks so much for your help.
MK says
At the beginning of the year, my employee makes my FSA funds available for use. Over the next 26 pay periods I contribute toward the amount I chose to elect, $500 in this case.
I have just spent the last remaining funds in this regular FSA.
I am also contributing to dependent FSA, up to the max of $5000. This should not affect my situation, as I understand it.
I opened my HSA on 6/1/19 so there is some overlap, and I plan to contribute the max allowed amount, $7000.
Harry Sit says
The dependent care FSA does not affect your HSA contributions, but if you are still contributing to the regular healthcare FSA (not a limited-purpose FSA; didn’t change jobs), it makes you ineligible to contribute to an HSA. The fact that you already spent the full amount doesn’t matter.
MK says
So my employer provided me with the FSA funds at the beginning of the year, and I contribute the $19.32/pay period toward the FSA. In essence I am contributing towards my FSA for the rest of the year.
I opened my HSA in June and have been contributing towards it…
What should my next steps be?
Harry Sit says
The place that has your HSA has a procedure to withdraw excess contributions. Contact them and follow that procedure. Don’t just withdraw the money on your own without telling them.
MK says
What are the excess contributions?
I will only have contributed $500 toward FSA for the year (actively contributing $19.23/bi weekly pay check).
Since opening my HSA, my employer has contributed $266 and I have contributed $1750.
There will have been a two month overlap since opening my HSA (june 1) and using all remaining funds in the FSA.
Harry Sit says
Ask your employer whether they automatically switched your FSA to a limited-purpose FSA when you started HSA. If they didn’t, and your FSA will continue through December 31, all the contributions from both your employer and you are excess contributions. When exactly you used up your FSA funds doesn’t matter.
MK says
When logging into my FSA account online (FSAFEDS), it still shows it listed as a Health Care FSA. I doubt my employer would automatically make the switch to a limited-purpose FSA.
Are the excess contributions only considered for what is contributed into my FSA? If so, that will only be about $250 or so.
Harry Sit says
The excess contributions are the money contributed to your HSA. You are eligible to contribute $0, but your employer and you contributed $2,016. The amount above your eligibility is excess.
MK says
So I should stop any future contributions immediately?
What do I do for the amount I already contributed?
Harry Sit says
If your employer will continue contributing, let them continue through the end of the year and then follow your HSA provider’s procedure to withdraw excess contributions at that time. The employer money will be taxable but it still beats getting nothing. Find the section on “Excess Contributions” in IRS Publication 969 (pages 7-8).
MK says
thanks..
So I’ve stopped my contributions and plan to withdraw them as excess contributions. I will plan to pay taxes on what I contributed, in addition to what my employer contributed throughout the year.
Ann says
I am having surgery 5 days before the new insurance plan year. Can I put the deductible on a credit card and reimburse myself using the next year’s FSA monies or can I use HSA monies from a prior HSA account?
Harry Sit says
FSA – no, because it goes by the date of service. HSA – yes, because you already have the money.
Zachary Fair says
Can dependent care FSA money be redeemed after quitting a job if the expenses occurred before quitting?
Harry Sit says
Yes, and unlike health care FSA, dependent care FSA can continue reimbursing for expenses incurred after termination as well (but still within the same year).
RT says
Hi Harry,
Our family insured via HDHP through my spouse employer. My spouse contributes to HSA (maximum allowed).
Can I sign up for LPFSA with my employer and contribute as well?
Harry Sit says
If your employer offers one, yes, but I haven’t heard any employer offering a limited-purpose FSA if you don’t enroll in the HDHP/HSA through them.
irena gumb says
Hi,
If we choose the high deducible with HSA as the family coverage through my husband’s employer (it would cover my husband, myself, and our two kids), can I choose the full 5K dependent FSA with my employer although we’re obviously not choosing my employer’s offered medical coverage.
Thanks!
Harry Sit says
Dependent Care FSA for childcare expenses is totally separate from HSA for healthcare expenses. No problem with having Dependent Care FSA together with HSA. For the most part we are talking about Health Care FSA here.
Alberto Ortiz says
Irena,
My understanding is yes since FSA is per employers and must be used in the year is deducted. If you meant HSA instead, the HSA to my understanding has to be a different account and you probably (not certain) may have to file taxes separately. My suggestion is to read the IRS directive for FSA/HSAs and double check with your tax professional.
Honeylet says
Hi Harry,
Me and my kids are insured via HMO and I opened an FSA account, our coverage is April 2019-March 2020.
My husband is under his employer’s insurance and they are switching to HDHP with HSA on January 2020.
I am not planning to enroll in FSA on our next enrollment but with the 3 months overlap, does it mean my husband and his employer is not allowed to contribute to HSA account for 2020 or allowed only 9/12 months?
Harry Sit says
If you spend all your FSA money by the end of March 2020, your husband and his employer can still contribute 9/12th of the annual maximum for 2020. If you have FSA money left and your employer carries over the money to the following plan year, then his HSA contributions will be further limited or disallowed.
Hongyan says
Hi Harry,
starting from 1/1/2020 to 12/31/2020, I have PPO (non HSA) + FSA contribution with my employer and my husband has HDPD + HSA contribution with his employer. I did not realize this is not allowed until now reading your article. While I thought I need to ask my husband to withdraw all excess funds in his HSA in 2020 year because my FSA contribution would make his HSA contribution limit zero, I noticed that my employer opened my FSA as a “limited purpose” FSA. I don’t know why it is the case and will need to call my FSA custodian to confirm/understand. But if it is indeed a limited purpose FSA, then it is ok to keep it as it is, and have my husband contributing to his HSA as normal? Or I should have my employer correct my FSA to general purpose FSA and have my husband withdraw all excess HSA funds? I guess the answer lies in whether people with PPO (non-HSA) are eligible for a limited purpose FSA? Thank you in advance.
Harry Sit says
If it is indeed a limited purpose FSA, you can keep it. You can only use the FSA money for dental and vision expenses.
Sam Cook says
Hi Harry,
My entire family was on my Health Plan (PPO) and GPFSA for Jan & Feb of 2019. During these two months the required monthly amounts were deducted from my paycheck for the GPFSA , but as we had incurred significant medical expenses during that period I was able to get reimbursed for a lot more than what I had put into the FSA during that period. I happened to resign from my job at the end of February and expected to have to pay back the overage to my employer but they have not asked me for this amount.
From March through August 2019 we signed up for a non HDHP through healthcare.gov.
From Sep to Dec 2019 the entire family has been on my wife’s HDHP plan and we have not signed up for FSA coverage through her employer.
She opened an HSA plan in December and funded it with $2,332 for the four months we thought we were eligible in 2019 (Sep thru Dec).
The people that are preparing our taxes are saying that we should not have contributed to the HSA in 2019 and that we will have to pay a penalty.. are they correct ?
Harry Sit says
From what you described, your tax preparers are not correct. Your FSA coverage ended when you terminated employment. Your former employer is not entitled to any repayment of the overage.
Joe says
My wife has an FSA through her work, for which she elected to contribute the maximum allowed for the year ($2750). We have already used up this FSA amount in medical claims during the first half of the year.
If I start a new job next month and get a high deductible plan, can I also get an HSA? I was not sure if the fact that we already used up the FSA funds in full means that there is no technical overlap because I would have an HSA during the months when there is no more FSA funds we could use.
Thanks!
Harry Sit says
The FSA gives you coverage for the full year. Using up the money early doesn’t make any difference.
Joe says
Thank you. Just to clarify when you wrote that switching jobs would enable getting an HSA with one employer and an FSA with the other employer, that non-overlap works only because switching jobs makes it possible to get both in the year? And that is why that situation is unique?
In this scenario of switching jobs, I assume that the spouse has no FSA available (otherwise one switching jobs does not matter because the spouse’s FSA would prevent one getting an HSA with either employer)?
Harry Sit says
If your spouse has the FSA, just you changing jobs still doesn’t make you eligible. If you have the FSA but your spouse doesn’t, then changing jobs will terminate that FSA and make you eligible.
JamesL says
Great info, much appreciated! Just wanted to make sure I understand: I am starting a job soon and would plan to sign up for the high-deductible health plan with HSA option. The company also offers a HSA-compatible FSA, so I would like to get it as well. However, my wife has a standard FSA through her work, so can I still sign up for the HSA and/or HSA-compatible FSA through my work? Or would I not be eligible for either because my wife has a standard FSA?
Harry Sit says
Because your wife has the standard FSA (assuming the plan year is the calendar year), you aren’t eligible to contribute to the HSA this year. If your employer contributes to the HSA when you choose the high deductible plan, you can withdraw the employer’s money as excess contributions. The money will be taxable but it’s like extra salary. You can still sign up for the limited-purpose FSA, but keep in mind the use-it-or-lose-it rule.
JamesL says
I did not realize that I could at least have the employer contribute to the HSA (even if I am not allowed to contribute) and take that out as an excess contribution like you suggested, that’s good to know! And that I could still contribute to a limited-FSA even if I cannot contribute to the HSA portion. Really appreciate your help!
Sophie says
My husband and I are working on our 2019 taxes that are due in a few days and realized that I have an HSA (with max contributions from me and my employer) and my husband has a PPO health plan with FSA. I will call my HR Benefits on Monday because they never said explicitly that if a spouse has FSA then I cannot get HSA, but I guess here we are… Just wondering:
1. What do you suggest we do if it is not too late to try to fix it? I have not had HSA distributions in case that helps.
2. While working on our taxes, the software program did not seem to indicate there was an issue with the HSA and FSA or show any tax implications. Does that mean that we will get a notice from the IRS later with a penalty for us to pay? Does the IRS even have a way to figure out the HSA and FSA combination if the software didn’t even tell us about it?
Harry Sit says
Even though they don’t make it easy for us, and the chance of getting caught is very low, we still follow the law and the rules, because it’s right thing to do. Look up “excess contribution” in IRS Publication 969 (starting on bottom right of page 8).
https://www.irs.gov/pub/irs-pdf/p969.pdf
In short you follow the special procedure from your HSA provider and withdraw the excess contribution. They will calculate and send you the earnings as well. You include the excess contributions and earnings as income and pay tax on the income. Don’t just withdraw on your own. Contact your HSA provider.
Because it’s very close to the tax filing deadline now, you probably need to file an extension.
James says
Thanks for the great info! I just started a new job, and I want to invoke the last-month rule so that I can contribute the max to the HSA this year. I was wondering about the testing period that requires me to stay covered for 12 months in a HDHP plan.
1. Does the 12 month testing period start counting as of August 2020 (when I started work) or December 2020 (last-month rule date)?
2. Does the 12 month testing period require me to stay with a HDHP plan during that time or just stay with the same employer? So I cannot switch in 2021 to a PPO plan for example?
Harry Sit says
The testing period starts in January 2021 and ends in December 2021. You must stay in an HDHP in all 12 months.
Leonard says
I started a job and want to sign up for the HDHP plan. My kids were on my wife’s PPO plan, but we want to put them on mine. I also want to max out the HSA family amount under the last-month rule. Just wondering about the following scenarios to help us plan for the upcoming year benefits enrollment:
– What happens if for next year my kids go back on my wife’s PPO plan, but I stay as a single in my HDHP? Does that satisfy the 13-month rule of staying in a HDHP plan or is it a problem if my kids leave the plan?
– What if we all go on my wife’s HDHP plan with her employer next year? Would that meet the 13-month rule because I would be technically on a HDHP plan (even if it is through her employer) or is the rule that I must stay on my same plan that I used the last-month rule?
Thanks so much!
Harry Sit says
You only have to remain an “eligible individual” in the following 12 months. Your coverage level can change from family to individual, and your plan doesn’t have to be the same plan or from the same employer.
Jess says
Hi Harry,
I realize that I cannot *contribute* to HSA while I’m covered under the General Purpose Flexible Spending Account (GPFSA). However, can I get *reimbursement* for health expenses from my HSA account (via old contribution from previous years) while I’m covered under GPFSA? I ask because I’ve fully used up the funds in my FSA account, and want to keep my recent prescription receipts to get future reimbursement if allowed. Thanks in advance for your insight.
Jessica says
Yes, as long as they were not already reimbursed from the general purpose FSA.
Cory says
Hello — I enrolled in a HDHP plan mid-year with my new job and I decided to contribute the annual max to the HSA based on the last-month rule. As a result, I realize that I need to stay covered in a HDHP next year for the testing period. Can I join next year the HDHP plan with my wife that her employer offers? Just checking that joining her HDHP plan for the whole year would satisfy my testing period rule or if I have to still be the primary on the HDHP.
Harry Sit says
Joining her HSA-eligible plan will satisfy your testing. See reply to comment #119.
Ernest H. says
Hi! My wife and I are figuring out how much to contribute towards our HSAs for next year to max out the $7,200 family contribution (as married filing jointly) for next year. We are each signing up for our own employer’s HSA as individuals to get both the employer HSA contributions. I understand that we have to split up between ourselves the remaining $7,200 minus all employers contributions.
My wife earns much more than me and she already pays the annual max of the social security tax, but I am under this limit cap. So we are thinking of putting all the remaining HSA contributions from me.
Does it matter if the HSA contribution gets deducted from me or her (if we file married jointly)? Or does deducting the HSA from me means that there is less payroll tax for social security, but if it were from her then she is already taxed the most for social security and we miss out on this slight “tax savings”?
Thanks!
Harry Sit says
If the contributions come from your paychecks versus hers, you will pay less in Social Security and Medicare taxes, but it also reduces the Social Security benefits based on your earnings records. If your expected Social Security benefits are less than half of hers and you expect to claim based on her earnings records rather than yours, then it doesn’t matter that the benefits based on your records will be reduced.
Ernest says
Thank you! Quick follow up – I assume that the same applies to FSA contributions? We are deciding how to allocate dependent care FSA deductions (combined $5,000 annually) between my wife and I, so just wanted to confirm that we should think of it the same way as HSA payroll deductions (such as how it would impact social security taxes today and also the earnings record in the future) when deciding how to split it. Thanks again!
Harry Sit says
Yes, it’s the same for dependent care FSA and limited-purpose health FSA for dental and vision.
Rose says
Hello! Great information here—thank you!
My scenario is that my husband enrolled in a HDHP and, not realizing the ramifications, I signed up for my employer’s general FSA. Mine took effect Jan. 1 but no employer contributions have been made. My HR and rep are saying that there is a possibility that they can revoke/stop the plan for me. But my husbands employer will make a contribution this month to his HSA. My question, is—if my FSA can be revoked, will we have to withdraw my husband’s employer HSA contribution for the month? Can we then continue with his HSA this year? Or will it still appear that I had coverage?
Thank you!
Harry Sit says
If the FSA election is revoked retroactively as if you never chose it, your husband’s HSA won’t be affected. If the FSA election is stopped in January and any money in the FSA is forfeited or is only available for expenses incurred in January, then it only affects January. Your husband’s HSA will have 11/12th of the annual limit. You just contribute a little less but you won’t have to withdraw the employer contribution to the HSA. You have to be completely out of the FSA, not just stop putting money into it or spending the money down to zero.
Micaela Ayers says
Helpful!
Keith says
Hi! Thank you for all the relevant information! I ended my old job on Jan 5, 2021 and contributed to a general health FSA. I am starting a new job on Jan 19, 2021 and the new job only has HDHP with an HSA. My wife does not have her own insurance, so my thought is I can contribute to the HSA because they do not overlap. That said, in your post I did notice you said the following: “What you can’t do is to contribute to an HSA and have a general purpose health care FSA for overlapping months…” The months part has me wondering whether contributing will be an issue. There’s definitely no overlap with the FSA but presumably I’ll start contributing end of this month. That said, my health insurance for the old job technically lasts until the end of the month. Should I ask my employer to delay health insurance and the FSA contribution until Feb 1 (not sure that’s even doable)? I’d like to max the HSA out if I can (which includes 3k from the employer), but I guess that would also require me to ensure I stay with the employer for most of 2022, right? Hope I’m not repeating questions here, but didn’t notice this exact situation in the list. I’d really appreciate your thoughts! Thank you!
Harry Sit says
The HSA eligibility is determined on the 1st of each month. Because you didn’t have an HSA-eligible plan on January 1, your contribution limit is 11/12th of the annual limit. If you had it on January 1, it would overlap with the FSA and make you ineligible anyway. While you can use the “last month rule” to qualify for the full annual limit, you only gain 1/12th of the limit with the additional commitment for 2022, which isn’t worth it. So just stay with 11/12th of the annual limit.
Alberto says
Hello Keith,
Wouldn’t worry about the overlap it is not significant IMO but if you want to be that detailed the answer is yes. You could defer your medical until Feb 1st. Actually you could decline medical all together and get your employer to compensate you. Seen several ex-military retirees do that.
Max the HSA is a good idea but make sure you file your taxes as a family HSA so everyone can use it. Other than taxes they do not check things that closely. We had FSA and HSA at the same time. We estimated the doctor visits, prescriptions, dental, glasses and did thst in an FSA for the year. Took of 10% to make sure we didn’t over contributed. Good luck!
Keith says
Thank you! If I only contribute 6600 (11/12), do I need to ensure my HSA and HDHP start no sooner than 2/1/21, or does that not matter? Thanks again.
Alberto says
LOL! No it does not matter.
In the absence of anything else, I have a question.
What exactly is the consequence if you do 12/12 and who is checking?
Harry Sit says
When you put down a number on your tax return, you’re saying you’re eligible to contribute that much. It’s a lie if you do 12/12 when you know you’re eligible for only 11/12th. It’s not about who’s checking. When no one is watching at the checkout line, you still don’t put candy bars into your pocket. Your integrity is worth way more than putting a few hundred dollars extra into your HSA. You still have those few hundred dollars. They just sit outside the HSA versus inside.
Alberto says
LOL! It’s a morality and ethical issue now? Bahahaha…..fundamentally it is a common sense thing. What I been trying to tell you is, it does not matter because it is not significant.
No we won’t still the candy or anything from anyone. Although I would argue that taxation is confiscation.
In his book Seven Habits of effective people, Steven Covey details efficacy, discernment, and effectiveness use of time and money. As I suggested originally, take the max and reduce it by 10% for your contributions and whatever you do , do not feel guilty or make it an ethical issue is you are over $1 or $2 because it does not matter and it will go not only unchecked but unnoticed. It’s not important.
Micaela Ayers says
I retire Feb. 1, so will only add 1/12 of the new (single)contribution limit of $3600 to my HSA this year.
But I qualify for the $1000 ‘catch-up’ and wonder: can I put it all in or do I only get to put in 1/12? Thanks!
Harry Sit says
Only 1/12 of the $1,000.
Alberto & says
Go directly to IRS Publication and do not take anyone’s interpretation……
https://www.irs.gov/publications/p969#en_US_2019_publink1000204049
Michelle says
I feel like it shouldn’t be so complicated but they make it so! I have seen so many different answers but this one makes most sense lol. Thank you.
Zoie says
Hi Harry! I still find this comments thread so helpful! I’m having a brain fart with HSA and FSA in same plan year, with same employer.
1) EE enrolls in HDHP and HSA on January 1. Also elects FSA, and because they have HSA, it is automatically a Limited FSA. EE has mid-year QLE on 7/1 and changes to non-HDHP plan, keeping the (limited) FSA plan. Our setup would automatically term the HSA 6/30 (no longer eligible) and change the Limited FSA to a general purpose FSA eff 7/1. I believe the recharacterization of the FSA from limited to general purpose is ok here? HSA to FSA – no issues, correct – even if didn’t recharacterize the FSA?
2) EE enrolls in non-HDHP and FSA on January 1. EE has mid-year QLE on 7/1 and changes to HDHP and HSA plan, keeping the FSA plan. Our setup would automatically flip the general purpose FSA to a Limited FSA effective 7/1. This is FSA to HSA. I believe the recharacterization of the FSA is ok here, and actually helps so that the HSA eligibility on 7/1 is ok? Since the general purpose would only reimburse “medical” expenses thru 6/30 – there is no overlap? If our setup didn’t allow for the recharacterization, then my understanding is that this EE would NOT be eligible to make HSA contributions. Do I have that right?
3) EE enrolls in non-HDHP and FSA on January 1. EE terminates employment on March 31. FSA coverage would end March 31 (no expenses beyond March 31 can be reimbursed). If EE is rehired on June 1 and elects the HDHP and HSA – the HSA eligibility here would be ok since there is no overlap, correct?
Thanks!
Harry Sit says
All sound good to me. As long as you keep to “HSA + limited FSA” or “no HSA + general FSA” in every month, it’s all good.
Zoie says
Thanks, Harry! I knew I was overthinking it!
Mego says
Hello Harry,
As a new HR person – I have an employee that has an FSA account for January to December 2022 – in August we began offering HDHP insurance and HSA accounts. The employee began contributing to his HSA account too. I now know he cannot do this. He should have completed the year with his FSA account and in January 2023 he could begin contributing to his HSA account and discontinue his FSA contributions.
I believe I am understanding that it would be best for us to “reverse” his contributions to his HSA account. I am not allowing him to contribute to his HSA for December but for the months of August and September I will need to do amendments on our quarterly tax filing and then changes to the 4th quarter filing as well. Does this sound correct? Just trying to wrap my brain around it.
Alberto says
This is not correct. If you have a high premium medical plan insurance anytime during the eligibility period, said so employee can contribute up to the maximum for the said year. It is not up to the employer to manage the HSA contributions. This is the role of the IRS.
Zoie says
In response to Alberto’s response – the employee had an FSA, so unless they are able to re-categorize it as a limited FSA then having the FSA would make them ineligible to contribute to an HSA. As such, I think what needs to happen is the employee removes the excess contributions with the HSA provider.