In order to be eligible to make or receive contributions to an HSA, a participant must (1) be enrolled in a HSA qualified HDHP, (2) not be another individual’s tax dependent, (3) not be entitled to (or enrolled in) Medicare, and (4) not be covered by any disqualifying coverage. In addition, eligibility to make HSA contributions is based on the status of the individual as of the 1st day of the month. If a participant makes or receives HSA contributions above what is permitted due to their eligibility, they will be subject to income tax and a 6% excise tax on the excess contribution.
Impact of a Spouse’s Health Care FSA on Eligibility:
A spouse’s Health Care FSA (HCFSA) functions similarly, to if an employee had the account themselves. All HCFSAs can be used for either the participant, their spouse, or their eligible dependents, which includes adult children through the end of the tax year if they are 26. Because a standard HCFSA can always be used for a spouse’s or dependents expense, this makes an FSA in either spouses’ name HSA disqualifying coverage for both individuals and their dependents within a marriage. A more in depth look can be found in this week’s Compliance Buzz: Your Spouse’s Health Care FSA’s Impact on HSA Eligibility.
Impact of Health Care FSA Rollover on Eligibility:
A standard HCFSA which offers rollover provides participants the ability to transfer up to $500 of unused funds from one plan year to the next. Any funds left in a HCFSA participant’s account on the last day of the plan year will trigger rollover. If any funds are rolled into the new plan year at the end of the runout period, and remain in a standard HCFSA, this is considered disqualifying coverage for either the entire plan year or part of the plan year. A more in depth look can be found in this week’s Compliance Buzz: Health Care FSA Rollover’s Impact on HSA Eligibility.
Article Credit: Employee Benefits Corporation