The IRS Prohibits Enrollment in an FSA and an HSA at the same time
If you or your spouse/qualified tax-dependent registered domestic partner is enrolled in an FSA, and one of you is also enrolled in a CDHP with a corresponding HSA, you are not in compliance with IRS rules!
The Internal Revenue Code prohibits dual enrollment or dual coverage in a CDHP/HSA and an FSA plan.
There is an exception to this dual enrollment coverage if the FSA is a limited purpose FSA. A limited purpose FSA restricts the use of the FSA funds to non-medical expenses (e.g., vision, dental). WSU’s FSAs are not limited purpose FSAs. If your spouse/qualified tax-dependent state-registered domestic partner is enrolled in a limited purpose FSA, you may not be in violation of the IRS rules and may be able to continue coverage in your CDHP/HSA.
What are my options for addressing dual enrollment and to avoid IRS tax consequences and/or penalties?
1. WSU employees enrolled in the CDHP/HSA (with a spouse or qualified tax-dependent state-registered domestic partner enrolled in a general purpose FSA):
- You may participate in a special open enrollment period in which you may request to change to a non-CDHP. This option is available within 60 days from January 1, making February 28 the deadline to pursue this option. See “How Do I Participate” below on how you can initiate this change.
- You may have your spouse/qualified tax-dependent registered domestic partner approach their FSA administrator and request that the FSA be changed to a limited purpose FSA, if possible.
- Again, this is not an option at WSU or other state of Washington agencies or higher education institutions.
2. WSU employees who are enrolled in the FSA (with a spouse or qualified tax-dependent state-registered domestic partner enrolled in a CDHP or HDHP with an HSA):
- You will not have a triggering event to dis-enroll from the FSA or participate in the special open enrollment period.
- In these cases, your spouse/qualified tax-dependent state-registered domestic partner with the CDHP or HDHP will need to contact their employer to see if they are able to adjust their CDHP/HSA plan selection.
- In the event the other employer cannot or will not allow a change in enrollment, or depending on the timing of that change, there most likely will be tax consequences.*
* You most likely will be responsible to pay income tax on the HSA contributions. Additionally, you may also be subject to an IRS penalty. WSU cannot offer tax advice, so it is strongly advised that you consult with a tax advisor.
How do I participate in the dual enrollment special open enrollment?
Employees moving to a non-CDHP must complete and return the 2020 Employee Enrollment Change Form within 60 days of January 1. Completed forms must be submitted to HRS-Pullman.
If you participate in the special open enrollment period, with the triggering date being January 1, and:
- You submit the form in January, the effective date of your change would be February 1.
- One month of employer contribution will be made to the HSA.*
- You submit the form in February, the effective date of your change would be March 1.
- Two months of employer contributions will be made to the HSA.*
- You submit the form after February 28th, you will have missed the 60-day window to participate in the special open enrollment. You will not be able to change your plan until next November’s annual open enrollment period unless there is another special open enrollment event that occurs.
- A full year of employer contributions will be made to the HSA.*
* There are tax consequences to you, and you most likely will be responsible to pay income tax on the HSA contributions. Additionally, you may also be subject to an IRS penalty. WSU cannot offer tax advice, so it is strongly advised that you consult with a tax advisor.
In Addition . . .
Please visit Health Equity for PEBB for other scenarios in which enrollment in a CDHP/HSA may not be appropriate.
Any questions regarding your HSA can be directed to HealthEquity, the HSA plan administrator, at 877-873-8823 or visit Health Equity for PEBB.
Any questions regarding your FSA can be directed to Navia Benefits Solutions (formerly Flex-Plan Services), the FSA plan administrator, at 800-669-3539, firstname.lastname@example.org or visit Navia Benefits for PEBB.
To have any other questions addressed, please contact HRS-Pullman at 509-335-4521 or email@example.com. Depending on your question, you may be redirected to HealthEquity, Navia Benefits Solutions, or your tax advisor.