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HSA Penalties


Guest KRD
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Guest KRD

My family has medical insurance through my employer using a HDHP and a HSA. The employer contributes $200 into our HSA.

On April 1st, my wife's employer will start contributing $500 toward a FSA.

I have done some research and I do know that my employer and I are not eligible to contribute to the HSA while contributions are going to FSA in the same month. I also know that ineligible HSA purchases are subject to 10% penalty tax.

BUT, what is the penalty to contributing to an ineligible HSA?

Here are my options:

1. Deny the HSA contributing from my employer and except the FSA from my wife's employer. I'm out $1800.

2. Deny my wife's FSA. I'm out $4500.

3. Accept both contributions and cross my fingers. If the HSA penalty for this is the same as ineligible purchases, (I don't know if this is the case), then I will have to pay taxes on the $1800, plus a 10% penalty. BUT, I'm still money ahead over deny the $1800.

So, my main question is, what is the penalty for ineligible HSA contribution? Same as ineligible purchases? Jail time? I can't find this anywhere.

Thanks in advance for all your help.

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Guest KRD

To add to this. I do know about the "Limited Use" FSA. I am trying to get her employer to classify the FSA this way, but they are a large company and not very flexible with benefits.

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Guest KRD

UPDATE:

After speaking with the IRS, I was told that any non-eligible HSA contributions are treated the same as excess HSA contributions. So they are taxed with a 6% penalty.

So, it would make sense to keep taking the employer contribution. I'll just have to pay taxes and penalties on the amount.

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