Chaz Posted May 18 Report Share Posted May 18 During open enrollment, an (childless) employee elects HDHP coverage and therefore (implicitly) to receive the employer's HSA "seed" contribution. Unfortunately, the employee also intended to enroll in the general purpose health FSA but instead enrolled in the dependent care FSA. The employer's systems obviously would not catch this error. Well into the year (the employer's cafeteria plan does not currently provide for a time limit of providing notification) and after the employer HSA "seed" contribution was made, the employee notices the mistake and notifies the employer. Pursuant to IRS guidance, the employer corrects the mistake and converts all of the year's prior and subsequent FSA amounts to the health FSA. The change would certainly make all HSA contributions, including the "seed" amounts, excess contributions. The employee can avoid the tax penalty if he or she takes a timely curative distribution. If the employee does so, the effect would be that he or she would get addition compensation from the employer but only as a result of the employee's mistake. Under these circumstances, can the employer ask the HSA custodian to return the "seed" contribution to it? Under the HSA regulations, there are only limited circumstances when this can be done, most notably when the employer was never HSA-eligible. Here, the conversion means that in effect the employee was "never" HSA-eligible but it was solely as a result of a change made mid-year. Any thoughts are appreciated. Link to comment Share on other sites More sharing options...
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