FAQ: Health FSA Carryovers and HSAs

April 1, 2014

Health FSA Carryovers and HSAsThe IRS addressed potential problems with HSA eligibility when an employee retains a general purpose health FSA from the prior plan year as a result of the new FSA carryover option.

The IRS guidance is in the form of seven questions and answers. The following is a recap of this information (please see the IRS memorandum for more detail). Each of these circumstances assumes the employee is otherwise eligible to contribute to an HSA.

  1. Can an individual contribute to an HSA if the individual participates in a general purpose health FSA as a result of unused amounts being carried over from the prior year?  No, an individual who participates in a general purpose FSA is not eligible to contribute to an HSA.
  2. Can an individual contribute to an HSA in the months after the carryover amount in the general purpose FSA has been paid out?  No, an individual who participates in a general purpose health FSA is not eligible to contribute to an HSA during the entire plan year of the FSA.
  3. Can an individual carry over the unused amounts from a general purpose health FSA into an HSA-compatible health FSA (such as a post-deductible or limited purpose FSA)?  Yes, although the carryover amount may not be carried over into a non-health FSA.
  4. Can the individual in number 3 above contribute to an HSA?   Yes, assuming the general purpose health FSA is terminated at year end.
  5. If a cafeteria plan offers a general purpose health FSA and an HSA-compatible health FSA, can it automatically treat an individual who elects an HDHP as enrolled in the HSA-compatible FSA and carry over any unused amount in a general purpose health FSA into the HSA-compatible FSA?  Yes
  6. Can an individual contribute to an HSA if they participated in a general purpose health FSA that had a carryover option, but they elected not to carry over any unused amounts?  Yes, assuming the individual declined the carryover amount prior to the start of the year and in accordance with  the terms of the cafeteria plan.
  7. If an individual elects to carry over unused amounts from a general purpose health FSA to an HSA-compatible health FSA, do the uniform coverage rules apply during the run-out period of the prior year general purpose health FSA?  Yes, an eligible expense under the general purpose health FSA incurred in the prior year, but presented for payment in the current year, will be paid from any unused amounts that were carried over from the prior year general purpose health FSA.
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