Family HSA after marriage when fiancée has a FSA account

[Dan149]

Hello.  I am getting married around October of this year and currently have a family HSA account and a HDHP.  My fiancée has a regular health plan and a FSA account.  When we get married in October, it is my understanding that I will no longer be eligible for my HSA due to her FSA account at least until the end of the year, is this correct?  If so, I assume that my HSA contributions would be prorated up until I became ineligible?  Our plan next year is to be on my HDHP and keep my HSA with no FSA.

[Mike9241]

yes the HSA deduction is prorated for the year.

if your spouse is currently enrolled in a general-purpose FSA plan, then you are not considered eligible for an HSA alongside it. The reasoning behind this is that both the FSA and the HSA will reimburse expenses prior to the deductible being met. Expenses would be covered under both plans, and as such disqualify one another. This is true even if the employee does not qualify as a dependent on their spouse's plan.

However, If the spouse is enrolled in a post-deductible plan or a limited-purpose plan, they will still be considered eligible for an HSA. This means even if you are not considered a dependent, you will still be eligible for an HSA plan alongside your spouse's FSA.

[NCperson]

@Dan149 - and the 'proration' should be $7300 /  12 * the number of months prior to the marriage.  (assuming you are under 55)

@Mike9241 thoughts? 

[Opus 17]

---

@NCperson wrote:

@Dan149 - and the 'proration' should be $7300 /  12 * the number of months prior to the marriage.  (assuming you are under 55)

@Mike9241 thoughts? 

---

You can always spend money from the HSA, you are just not eligible to contribute if you are covered by an FSA.  You are "covered" by your spouse's FSA once you get married, because an FSA can be used to pay medical expenses for the owner, a spouse, or their dependents.

(I assume, that since you have a job with an HDHP, you are not currently a tax dependent of your fiancee, so you are not covered currently by the FSA but will be covered once you are married.)

We are also assuming that if you are on a family HDHP, that means you and at least one other dependent who is not your fiancee (such as your child together). 

Eligibility is determined on the first day of the month, so if you get married after October 2nd, you would be eligible for 10 months of contributions which is 7300/12 x 10 = $6083.  You can make these contributions any time during the year, including after you are married, as long as your annual total does not exceed your eligibility.

Your marriage may count as a "qualifying event" that would allow your fiancee to terminate their FSA immediately.  If you marry in October and your new spouse is allowed to terminate their FSA before November 1, then you would have full eligibility to contribute to the HSA for the entire year.

Finally, if you and your spouse are covered by an HDHP and have no other disqualifying coverage (such as, starting January 1, 2023 under your outline), then both you and your spouse are eligible to contribute to separate HSAs, as long as you don't exceed the combined family maximum.  She is allowed to contribute if she is "covered" even if she is not the policy owner.  You will get a slightly larger tax benefit for making contributions by payroll deduction compared to making out of pocket contributions and taking the tax deduction on your tax return, but there may be strategic or personal reasons why you would want to each have separate accounts.  Remember that an HSA is an individual account, you can't have a joint HSA, but you can each contribute to a separate HSA. 

[Opus 17]

@Dan149 

One more thing. You want to make sure that your fiancé spends the FSA completely before the end of 2022.  If there is a balance in the FSA on January 1, 2023, even if your wife did not re-enroll for 2023, she may be covered during a grace period for the 2022 plan.  That would make you ineligible to contribute to an HSA until the grace period ended.

[Dan149]

I appreciate all the help everyone. I thought I would add more detail to see if it changes anything.  I am married now as of September 2022. (Yay!)   Before we got married, my wife had a non HDHP with an FSA account that from what we can tell goes from May to May of each year. I have a Family HDHP and HSA account due to other dependents.  I just recently changed my wife to my HDHP but she is being told she cannot cancel her FSA because she has spent more than she has contributed to it even though they have cancelled her insurance due to the life event.  Due to this, I have cancelled my HSA contributions for the rest of the year. I have read conflicting information across multiple websites so wanted to make sure I understand the implications.  If she has to continue contributing because she was FSA eligible and has spent more than contributed so far in the FSA, does this mean I will not be HSA eligible till 2024?  Can we use after tax money to pay off the remaining balance in the FSA account or maybe use my HSA account to pay off her FSA debit so the FSA can be terminated due to us getting married?

[Mike9241]

see these two links

https://employee-resources.lumity.com/help/hsa-and-fsa-in-the-same-year#:~:text=HSA%20and%20FSA%20in... 

https://employee-resources.lumity.com/help/switching-from-a-health-fsa-to-an-hsa 

to summarize the above 

if she spends the entire balance in the FSA by the end of MAY - the end of the FSA plan year you become HSA eligible in June. leave a single penny in and spend it or lose it during the grace period delays the HSA for another 3 months. see discussion about Last Month Rule below

Can we use after tax money to pay off the remaining balance in the FSA account or maybe use my HSA account to pay off her FSA debit so the FSA can be terminated due to us getting married?  I doubt it but ask the FSA custodian. however, the mere fact that she will have an FSA and may be able to contribute through May would mean you would still be HSA ineligible until June

left something out which is important. the Last Month's Rule. as long as you had family HDHP coverage on 12//1/2023 and no disqualifying coverage on that date. you can make a full year's HSA contribution for 2023. there is a trap when you use the LMR. you must remain HSA eligible for all of 2024

Your spouse became an eligible individual on June 1, 2023 (assuming the entire FSA was spent). Before that, the family was ineligible because the FSA counts as “other health coverage.”

Because she was eligible on June 1, 2023, or at worse Sept 1, because any money not spent by 5/31/2023 would be forfeited on 8/15/2023, the last month rule can be used to contribute the full amount for 2023. If this rule, is used you are subject to a testing period, which means that the family must remain HSA eligibility through December 31, 2024, or there will be a penalty to pay

for more info see PUB 969 the HSA section

https://www.irs.gov/pub/irs-pdf/p969.pdf 

[Opus 17]

@Dan149 

1. Even though the FSA is over-spent, it still legally counts as "coverage" that disqualifies you from making contributions to an HSA.  Your contribution limit for 2022, if you had family HDHP coverage (you said prior dependents) is $608.33 for each month you were eligible.  Eligibility is determined on the first day of the month, so assuming you got married on or after September 2, 2022, you are eligible to contribute $5475 to your HSA for 2022 ($608 x 9 months).   If you have not contributed the full $5475, you can make an extra contribution any time from now until 4/15/2023.  The tax return only cares about the total eligible amount, not when the contribution was made.  

2. Because your wife's FSA ends in May, 2023 (assuming the balance is zero by the end of May) your eligibility to make HSA contributions resumes in June, 2023.  Your wife would also be eligible to open an HSA in her own name since she is "covered" by a family HDHP, even though she is not the primary insured of the HDHP.   The contribution limit for 2023 for a family HDHP is $7,750, or $645.83 per month for each eligible month.  You would be eligible under the conventional rules to contribute for 7 months or $4520.83.  If your wife has an HSA, you can split your contribution limit any way you like as long as the overall total is equal to or less than your limit.

3. If you are eligible to make HSA contributions on 12/1/2023, you can use the last month rule to contribute the full amount of $7750 for 2023. The last month rule requires you to maintain eligibility for all of 2024 as well.  If you plan to use the last month rule, you can make contributions any time during the year, between 1/1/23 and 4/15/24.  You don't have to wait for the FSA to end.  The tax return only cares about the total eligible amount, not when it was made.  (But if you have made advance contributions and then decide not to use the last month rule, you will have to remove the excess contributions before the 4/15/2024 tax filing deadline.)

4. I don't believe there is any legal way to satisfy the FSA shortfall with other funds, although that is up to the plan administrator.  Your wife can try contacting the benefit administrator of the FSA and ask, the employer HR department may not know the options.  However, you still have to cancel within 60 days of the life event, so even if it was allowed to pay off the balance, you have to get that done quickly.  You can't pay off the FSA shortfall with HSA funds, that's clearly not allowed.  If you paid it off with after-tax dollars, you would lose the tax benefit of paying medical bills with pre-tax money.  If the FSA could be canceled on or before December 1, then you could use the last month rule as of 12/31/22 to make a full year contribution for 2022, with the condition that you remain eligible for all of 2023.  

I suspect you will not be allowed to pay off the FSA shortfall.  If your wife were to quit, the FSA would end and the employer would have to eat the shortfall, that's part of the tradeoff for the use-it-or-lose-it rule.  A long as she works for the employer, I think she is stuck with the FSA until the end of the plan cycle.  But it would not hurt to ask them. 

[george1207]

@Opus 17 "You can make these contributions any time during the year, including after you are married, as long as your annual total does not exceed your eligibility."

Does this mean that I can make contribution even after I became ineligible for some reason as long as I didn't hit the prorated limit?

[Opus 17]

---

@george1207 wrote:

@Opus 17 "You can make these contributions any time during the year, including after you are married, as long as your annual total does not exceed your eligibility."

Does this mean that I can make contribution even after I became ineligible for some reason as long as I didn't hit the prorated limit?

---

Basically, yes.  Your eligibility for the tax year is based on your insurance coverage as of the first day of each month.  Once you know what your limit is, you can contribute that money any time during the tax year, all the way up to April 15 of the next tax year (the tax filing deadline -- just be sure to let the HSA bank know it is a deposit for the prior year).  You don't have to be eligible on the day you make the deposit, as long as your total contributions for the tax year are below your eligibility limit.