Need to Correct FSA and HSA contribution in 2020

[yihan21]

I just found out my wife contributed $2,700 FSA in 2020 and I also contributed $7,100 HSA in 2020. My wife and I had high deductible family health insurance from Mar 2020 to Dec 2020 (due to my job change). She had her own insurance from her workplace and I had my own insurance from my old workplace from Jan to Feb 2020. My questions are:

1. How to correct this in the tax return?

2. Ideally I would like to keep the HSA contribution and correct the FSA contribution, is this possible? 

Thanks for your help. 

Best,

Ying

[yihan21]

I just found out my wife contributed $2,700 FSA in 2020 and I also contributed $7,100 HSA in 2020. My wife and I had high deductible family health insurance from Mar 2020 to Dec 2020 (due to my job change). She had her own insurance from her workplace and I had my own insurance from my old workplace from Jan to Feb 2020. My questions are:

1. How to correct this in the tax return?

2. Ideally I would like to keep the HSA contribution and correct the FSA contribution, is this possible? 

Thanks for your help. 

Best,

Ying

[JamesG1]

You can correct excess contributions by removing the excess amount (and any earnings attributable to the excess contributions) before you file your personal income tax return for that tax year.

By doing so, you do not include the amount of the excess contribution in your taxable income and you face no additional tax.

If you do not withdraw the excess contribution, the excess contribution is subject to a 6% penalty on excess contributions.

You may be able to apply some portion of the excess contribution to a future year but you would still be subject to the 6% penalty in the current year.  See Option 2: Apply to a future year.

[yihan21]

Thanks James, but how to "correct excess contributions by removing the excess amount (and any earnings attributable to the excess contributions) before you file your personal income tax return for that tax year"? Can i do it in the turboTax? Or I need to contact my payroll?

[DianeW777]

You must contact payroll and they will let you know if you need to contact the HSA/FSA administrator. Confirm the action to remove the excess is completed, then file your tax return as though there were no excess contributions. Use only the allowed amount for 2020, on the 2020 tax return.

It must be completed before filing your tax return to eliminate penalties. In your 2020 return, 

[yihan21]

Thanks, May I have my FSA withdraw (not HSA)? Or I must withdraw the HSA?

[MarilynG1]

@yihan21 The FSA is not considered an 'excess contribution' so you can't remove it. 

 In order to have both an HSA and FSA  coverage in a family unit, the FSA needs to be a specific purpose FSA.  In other words the FSA can only be used for eligible vision or eligible dental expenses exclusively. 

Your spouse's FSA would be considered additional medical coverage other than the HDHP, as their FSA would be able to pay all family medical expenses.  

Click this link for detailed info on Removing an HSA Excess Contribution.