@yihan21 wrote:
Thanks. May I have my FSA withdraw instead of HSA? Or I must withdaw the HSA?
First of all no, that's not permitted. Second, there should not be any money left in the 2020 FSA at this point, it is "use it or lose it", unless her plan allows a grace period. There is no method allowed in the law to cancel the FSA, repay the expenses, and make it as if the FSA never existed for 2020.
Furthermore, if you do have a "carry forward" amount in the FSA that you can use in 2021 during a grace period, that also counts as "other coverage" and disqualifies you from making 2021 contributions to the HSA, for as long as there are funds in the FSA, even if your wife did not re-enroll in the FSA for 2021.
If your wife did re-enroll in a medical FSA for 2021, that will disallow all HSA contributions for 2021. Normally, a medical FSA can't be canceled once you enroll, unless you have a qualifying life event that allows changes to your benefits (like marriage, divorce, change of job, or birth of a child). However, one of the COVID relief provisions allows employers to permit their employees to make mid-year changes, such as canceling an FSA without a qualifying life event. Employers are not required to permit employees to do this, but the employer can change the rules to permit employees to do this if the employer chooses. In that case, you would be eligible to make HSA contributions beginning the first day of the month after the FSA funds are spent.
https://www.irs.gov/pub/irs-drop/n-21-15.pdf
