Background:
* My benefits year is May 1, 2024 - Apr 30, 2025.
* I have an HDHP with HSA from my employer
* My employer contributes $250/mo to the HSA whether I contribute or not.
* I have been matching that contribution of $250/mo
* My wife enrolled in an FSA plan at her employer which started in Jan 2025
* My wife's benefits year is Jan-Dec.
What I've learned in the last month is that her FSA starting in January made me ineligible to contribute to the HSA in 2025. Her employer won't let her unwind the FSA, so I'm stuck with it. I can obviously stop my contributions to the HSA, but I (and my employer) have already contributed for 4.5 months this Tax year. All the money is still there. We haven't spent it and I've stopped using the money in the account until this is settled.
I think these are my options, please correct me or point out any others:
- Mark myself ineligible at my employer. This will stop theirs and my contributions. Then, file the excess contribution form for both our contributions made from Jan-now, before filing for TY25. This means I'll technically lose some of my total compensation because they won't shift the remaining HSA payments to my regular income (I asked). Not great, but it's not the end of the world.
- Same as option 1, but I ask the HR dept to instruct the HSA administrator to return their contributions. Then I just have mine to file for excess.
- Set my contribution moving forward to zero. Allow my employer's contributions to continue and file an excess contribution form to withdraw all the money that went in there from Jan-Dec prior to filing my TY2025 return. I think this means I'll just have to pay taxes on that income like it's regular income.
Is there anything I'm missing? I've a pretty solid grasp of basic taxes, but this is above my head. What penalties should I be looking forward to? I presume I should adjust my witholdings to account for increased AGI from the excess contributions, but is there anything else I need to prepare for?
