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?