Spouse added HSA, I had FSA but was laid off, how to fix?

Follow up to earlier thread

Hello @Brian Gilmore, thanks for sharing these details. We’ve found ourselves in a very similar situation and would appreciate your guidance.

During last year’s open enrollment for the current year (2025), I enrolled in a PPO plan with my employer and elected an FSA with a contribution of $1,100. I was the only one covered under that plan. At the same time, my wife enrolled in an HDHP through her employer, covered herself and our daughter, and opened an HSA. We didn’t realize then that an FSA and HSA can’t coexist between spouses.

I was laid off in mid-January. My employer had already opened the FSA and deposited the full $1,100, even though only $43 was deducted from my paycheck. I didn’t learn about the account until recently when I contacted the custodian to close an old HSA. After I lost my job in January 2025, I moved to my wife’s HDHP, and she increased her HSA contributions with the goal of reaching the family limit of $8,550. After reading your thread, she has now asked her HR team to stop contributions for December.

With that context, I’m hoping you can help confirm a few points:

1. Since I lost my job in mid-January but had an active FSA at that time, were my wife’s HSA contributions still allowed for the rest of the year?

2. If partial-year eligibility applies, is the maximum HSA contribution prorated to 11 months, meaning 11/12 of $8,550 ($7,837.50)?

3. I haven’t used any of the $1,100 in the FSA. The FSA provider shows the account as active and says I can still use the funds. Is that correct?

Thanks again for your insights, Brian. Your expertise is genuinely helpful.

1. Since I lost my job in mid-January but had an active FSA at that time, were my wife’s HSA contributions still allowed for the rest of the year? Yes, your spouse (assuming a) health FSA coverage ended in January, b) you didn't elect COBRA for the health FSA, and c) she no other disqualifying coverage from 2/1 forward) became HSA eligible as of February.

2. If partial-year eligibility applies, is the maximum HSA contribution prorated to 11 months, meaning 11/12 of $8,550 ($7,837.50)?  Yes, I agree.  Although you could take advantage of the last-month rule if you wanted to increase that to the full $8,550.  I've copied the details below.

3. I haven’t used any of the $1,100 in the FSA. The FSA provider shows the account as active and says I can still use the funds. Is that correct?  Probably not.  It's possible they have a very long run-out period.  But a run-out period doesn't affect HSA eligibility regardless.

https://www.newfront.com/blog/the-hsa-contribution-rules-part-ii

Contribution Limit for Partial Year of HSA-Eligibility: The Last-Month Rule
Employees who enroll in the HDHP mid-year are generally subject to the proportional contribution limit above. However, a special rule known as the “last-month rule” (alternatively referred to as the “full contribution rule”) may apply to permit the mid-year enrollee to contribute up to the full statutory limit—even though the employee was not HSA-eligible for the full calendar year.

In order to qualify for the last-month rule, the employee must satisfy both of the following two conditions:

1. The employee is HSA-eligible on December 1 of the year at issue; and
2. The employee remains HSA-eligible for the entire following calendar year.

This creates a 13-month “testing period” that applies to determine whether the individual has met the last-month rule requirements. The mid-year HDHP enrollee must be eligible on December 1 through the entire subsequent calendar year to contribute up to the full statutory limit—as opposed to the standard proportional limit—for the year in which the employee enrolled in the HDHP mid-year.

Example 2:

• Kris enrolls in HDHP coverage on October 1, 2025 and is HSA-eligible continuously through the end of 2026.

Result 2:

• Kris can contribute up to the full statutory limit (as opposed to the standard proportional limit) in 2025 by taking advantage of the last-month rule.
• Kris qualifies for the last-month rule in 2025 because he was HSA-eligible in the 13-month testing period from December 1, 2025 through December 2026.
• If Kris had not qualified for the last-month rule (e.g., enrolled in a standard HMO in 2026), his 2025 contribution limit would have been 3/12 (1/4) of the contribution limit.

The IRS provides a useful summary of the last-month rule in Publication 969 and in the Form 8889 Instructions. Mid-year HDHP enrollees who contribute to the statutory limit but do not satisfy the 13-month testing period by failing to remain HSA-eligible will be subject to income taxes and a 10% additional tax on the amounts contributed in excess of the statutory limit.

2025 Newfront Go All the Way with HSA Guide

Thanks @Brian Gilmore for the detailed explanation. Really appreciate the clarity you provided on how the FSA coverage end date affects HSA eligibility.

I do have one follow-up question. In this scenario, my wife had already started contributing to her HSA on January 1. Since you mentioned she becomes HSA-eligible as of February (assuming the FSA ended in January and no COBRA was elected), would the January contribution create any issue or require correction?

Thanks again for the guidance.

Good question.  The guidance is pretty clear that you can make HSA contributions (up to the applicable proportional limit) after losing HSA eligibility for the year (until 4/15 of the prior year).  It's always been a bit of a mystery to me whether contributions made prior to becoming HSA-eligible in the year are valid.  My feeling is it is probably technically considered an ineligible excess contribution, but I'd consult with a personal tax adviser given it's a gray area. 

It does seem like an unnecessary hassle to take a corrective distribution of 1/12 only to make that contribution back, but again in theory that's probably technically correct.

Brian, thanks for the quick and thoughtful response. I appreciate how clearly you explained the guidance and the technical nuances.

 This helps me understand the next steps.