Accidentally Have Healthcare FSA While Spouse Had HSA — What Are My Options?

[xiaochong2dai]

Hi all,

I’m looking for advice on how to fix a tax issue my family has run into for 2025.

My wife has had HSA-eligible coverage through two employers this year and is about to start a third job that also offers an HSA with employer contributions. We now realize that I should not have enrolled in a Health Care FSA through my own employer, since that disqualified her from contributing to an HSA during the months I was enrolled.

Here are the details:

• I elected a $500 general-purpose Health Care FSA through my employer.

• It was funded through payroll deductions ($500 over 26 pay periods), but the full $500 became available on Jan 1.

• Both my and her benefits year is Jan 1, 2025 - Dec 31, 2025.

• We already used the full $500 amount mainly for dental expenses for my wife and kids.

• My wife has been HSA-eligible since January 1, 2025, and has made HSA contributions through her employers.

• My employer does not offer a Limited-Purpose FSA, so I don’t think we can reclassify.

Questions:

1. Is there any way to cancel or reverse the FSA election mid-year?

2. Can the FSA be reclassified or amended to avoid disqualifying her HSA?

3. What are our options to fix or report this on our taxes?

4. Will she need to withdraw all HSA contributions made while I had an FSA?

We want to proactively fix or mitigate this before tax time. Any help would be appreciated — we’re learning this the hard way!

Thanks so much!

@hsa 

[LenaH]

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. 

[xiaochong2dai]

@LenaHThank you so much for the detailed explanation! That was super helpful. I really appreciate your time — and sorry for the follow-up questions:

My wife worked for a company (Job 1) until March 2025, then moved to Job 2 (still active), and she plans to start Job 3 next month (in August 2025).

• For Job 1, she had HDHP coverage and both she and her employer contributed to her HSA.

• For Job 2, she also has HDHP and made HSA contributions, and the employer contributed as well.

Given your explanation that she was ineligible for an HSA for all of 2025 due to my Healthcare FSA, I understand that all HSA contributions this year are considered excess and need to be withdrawn.

I have a few specific questions:

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(1) When you say she needs to withdraw the full amount of 2025 contributions (plus earnings), does that include:

• both her own contributions and employer contributions?

• Or just her own contributions?

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(2) If employer contributions also need to be withdrawn:

• Does she need to repay those to the employers (especially Job 1, which she already left)?

• Or does she just coordinate with the HSA provider (Fidelity) to withdraw the full amount including employer portions?

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(3) For Job 3 (starting in August):

• The company offers a generous employer HSA contribution if she enrolls in their HDHP.

• However, based on this situation, it seems she shouldn’t enroll in HDHP + HSA at all, even if she opts out of contributing herself — is that correct?

• In that case, would it be safer to choose a non-HSA plan, just in case the employer auto-contributes?

(4) What if we’ve already spent some of this year’s contributions from the HSA accounts tied to Job 1 and Job 2 earlier in 2025? If we continue to spend from those 2025 contributions, would those amounts still count as part of the excess and need to be repaid? Or are funds already used (or to be used later in 2025) treated differently when determining and correcting the excess?

(5) Lastly, when we file our 2025 taxes early next year, is there anything we need to address in particular around this issue? For example, are there specific tax forms (e.g. 1099-SA or 8889) we should expect from Fidelity or include in TurboTax to reflect the withdrawal of excess contributions?

Thanks again! @LenaH