I will address your questions below:
- Is there any way to cancel or reverse the FSA election mid-year? No. Generally, you'd need a qualifying life event to make any changes. This includes events like marriage, divorce, change in number of dependents, or change in employment.
- Can the FSA be reclassified or amended to avoid disqualifying her HSA? No. The type of FSA is typically determined at the time of enrollment. Although there is sometimes an exception for this type of scenario, your employer does not offer a limited FSA and therefore you have no ability for coverage.
- What are our options to fix or report this on our taxes? Since your wife is ineligible for the entire year of 2025, all of her contributions are considered excess contributions. I would suggest stopping any further payroll deductions for her HSA and contacting the administrator to explain the situation. They will walk you through the paperwork to withdraw the full amount of 2025 contributions (plus any earnings).
- Will she need to withdraw all HSA contributions made while I had an FSA? Yes. Since she was not eligible for any month of 2025, all her contributions for the year must be withdrawn to avoid a penalty.
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