# HSA eligibility while simultaneously covered by a foreign health insurance plan



## remoteinbermuda (11 mo ago)

Did I lose my HSA eligibility when I simultaneously enrolled in a foreign health insurance plan?

I am US person employed by a US company while remote on a pandemic digital nomad visa for all of 2021. I never paused my US medical HDHP insurance (which does not cover me abroad) and I continued to contribute to my HSA account while living and working abroad. In addition, I bought health insurance from the local government in my new resident country, including emergency air evacuation back to the US. My foreign insurance plan does not cover any expenses in the US, even after evacuation. My local plan has no deductible or out-of-pocket maximum concept, that I am aware, and probably would not meet US HDHP qualification. This seemed like a responsible thing to do, but does this mean that I lost eligibility for the HSA tax benefit?


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## 255 (Sep 8, 2018)

@remoteinbermuda -- I am not an expert, but my opinion is this is a gray area. In reading IRS Pub. 969, your purchase of foreign government health insurance is clearly not in the list of "exceptions," so on the surface would be disqualifying.

I think since you have maintained your HDHP and your new plan doesn't cover you in the U.S. (especially since you are on a limited visa,) an augment can be made that you only got the new plan to cover your temporary situation.

Personally, I'd probably not contribute additional funds until I return to the States. If you're concerned, you should probably contact a tax attorney about any need to remove your 2021 contributions. Most will give you a telephone consultation, without charge (at least that's been my experience.) Cheers, 255


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## remoteinbermuda (11 mo ago)

Thanks, all the gray areas are getting a little frustrating. I would like to be able to do my own taxes this year, just like I have done in previous years (also abroad), but this visa is a new scenario for me. I have scheduled a paid consultation for later this week (because the list of questions is getting long). It looks like non-eligible HSA contributions is something that can be corrected more easily before (rather than after) I file this year’s taxes. But if I don’t have to make any changes, I’d be much happier. Although if the consultant is mistaken, then I’m still at audit risk. Maybe it is safest to just reverse and forego the HSA? That’s why I’d be curious to also hear from others in a similar situation. :-(


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## MrHSA (11 mo ago)

remoteinbermuda said:


> Thanks, all the gray areas are getting a little frustrating. I would like to be able to do my own taxes this year, just like I have done in previous years (also abroad), but this visa is a new scenario for me. I have scheduled a paid consultation for later this week (because the list of questions is getting long). It looks like non-eligible HSA contributions is something that can be corrected more easily before (rather than after) I file this year’s taxes. But if I don’t have to make any changes, I’d be much happier. Although if the consultant is mistaken, then I’m still at audit risk. Maybe it is safest to just reverse and forego the HSA? That’s why I’d be curious to also hear from others in a similar situation. :-(


I am an HSA expert and it is my professional opinion that your foreign health insurance plan definitely disqualifies you from contributing to an HSA. Count every month that you had this coverage effective on the 1st day of each month (i.e., you are disqualified for the entire month). Eligibility to contribute to an HSA requires that you have no other coverage that does not meet the minimum deductible requirement ($1,400 for single coverage / $2,800 for family coverage for 2021 and 2022) of an HSA-qualified insurance policy. There are some exceptions (e.g., dental or vision coverage) but none for the coverage you likely have. Any contributions you made to your HSA for 2021 should be withdrawn before you file your income tax return (without extensions). Make sure you ask your financial institution to code the withdrawals as a "withdrawal of excess contributions." If you explain your situation they should understand. You don't want to be assessed taxes or penalties for making withdrawals for non-qualified expenses.


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## remoteinbermuda (11 mo ago)

Thanks, I agree with your assessment. Though this is not what I want to hear, it should only be a small hassle to fix. I am sure my financial institution has dealt with people that unknowingly had "other disqualifying insurance" at some point, and they know what to do. I have also read that I might need a new W2 from my employer. I expect my HSA account holder can advise on this.


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## MrHSA (11 mo ago)

I hope the financial institution can help you with these matters. If not, let me know.


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## remoteinbermuda (11 mo ago)

Do I need a corrected W2 now or can I proceed with my original W2?

I called my HSA custodian and they instructed me to fill out an online form to return my tax year 2021 excess contributions. The transaction was quick. However, they returned both my contributions and my employer’s contributions to me (plus the related growth of course). Next, I contacted my employer to ask about a corrected W2 and how I will return their contribution to them. My employer is very confused and told me that they have already sent out 2021 W2s and no changes can be made. 

Will my HSA account institution inform my employer of the correction to excess funds? Contributions were made via pre-tax payroll deductions. Publication 969 suggests how to account for “other income” not included in Box 1 of the W2, typically for prior tax years I think, and other online resources suggest an excess correction after the calendar year but before the filing deadline needs a corrected W2. Am I correct in thinking that I need a new W2? Will my employer figure it out in a few weeks or do I need to push them to take action?

Thanks!


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## 255 (Sep 8, 2018)

@remoteinbermuda -- Your employer should issue an amended W-2, but if not, no worries. Obviously, it is extra work for your employer, and it sounds like they don't want to be bothered (especially since it was caused by your mistake, not theirs.) As long as you report all of your income, irrespective of your W-2, you're putting forth a good faith effort in filing and you'll be fine. Cheers, 255


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## MrHSA (11 mo ago)

I am told your employer is not required to issue an amended W-2. If they don't, use the W-2 that you have and the IRS Forms 5498-SA and 1099-SA that you will get from your HSA custodian to complete Form 8889 which needs to be included with your income tax return (Form 1040). Hopefully, your accountant can help you with all this.


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## remoteinbermuda (11 mo ago)

I can't say that this has been worth the hassle at all. I am OK if I do not receive a W-2 but now both my HSA custodian and my employer are saying that my return of excess funds will be a 2022 taxable event. Because the distribution was in calendar year 2022. And, I will not get the appropriate 1099-SA disclosing this distribution until 2023 as part of my 2022 summary. Is this considered a "distribution" if they coded it correctly? Isn't it just a return of 2021 income that wasn't supposed to go there in the first place? If I report it as additional income in 2021, am I going to have to pay taxes again for these same funds in tax year 2022, because perhaps they coded it incorrectly as a distribution? I specifically submitted the "Return of Excess Contributions" form. 

I thought my questions were straight-forward: 1) Do I get a form from my HSA custodian like a 1099 to file with my 2021 taxes? and 2) Was my employer informed by the HSA custodian? The answer to both questions appears to be "no". So I don't need any extra tax documentation, and there's no way to expect my employer to issue any corrected W2 for action taken outside their line-of-sight.


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## remoteinbermuda (11 mo ago)

Also, I get to keep my employer's contributions apparently.


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## Bevdeforges (Nov 16, 2007)

remoteinbermuda said:


> Isn't it just a return of 2021 income that wasn't supposed to go there in the first place? If I report it as additional income in 2021, am I going to have to pay taxes again for these same funds in tax year 2022, because perhaps they coded it incorrectly as a distribution?


That's not the appropriate interpretation. Aren't the amounts you contribute to the HSA deductible from your income? (That's supposed to be the "attraction" of the HSA fund, isn't it?) Your original W-2 should have adjusted for the deductible contribution or at least indicated the amount for you to deduct from your gross income from salary. So the return of the contribution becomes additional income in 2022.

A couple possibilities leap to mind here: either you can simply NOT deduct the amount you contributed to the fund from your gross salary figure when filing your 2021 taxes, and just be prepared to "explain" this to the IRS should they come back and ask you about it later (if they ever get around to processing this year's returns). Or, deduct it on your 2021 return, and then declare the income with the refund of the erroneously deducted amount next year. I think I'd go with the first option - file what you know is correct and then keep good notes on it on the off chance they ever get around to asking about it. 

The employer portion isn't taxable to you, I don't believe, so that little issue is between your employer and the IRS.


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## remoteinbermuda (11 mo ago)

I think that I know what I need to do. I just got momentarily derailed by a few HR service tickets that hadn't been closed yet. I have informed my HSA custodian and they have withdrawn the correct funds. I have informed my employer and they may not need to do anything. My job is done.

I will file with my original W-2. I will file my 8889 documenting my 2021 contributions, calculating my excess, and determining the additional income tax owed. I will not file form 5329 for excise tax on an HSA distribution, because I promptly corrected the contribution before the filing deadline (but I will re-read the form). My HSA custodian will deliver form 5498-SA in May showing my 2021 contributions, as listed on my 8889. In January 2023, I will receive an informational 1099-SA showing the 2021 excess was returned to me in 2022. As long as the 1099-SA matches the excess amount that I reported on my 2021 tax forms, no amendments will be necessary.

Should my employer decide to issue a W-2c, it should not affect my taxes owed, and should not result in any 1040 amendment. Any action they take should not affect me. There are many websites suggesting a 1099-SA should be issued (but when?) and that mention a corrected W-2 from the employer. This is very confusing. But I think these suggestions are for scenarios where the HSA funds did not go to a valid HSA account, or were not otherwise tracked by an HSA custodian with appropriate 5498-SA and 1099-SA forms.

I hadn’t really read the Employer Participation section in publication 969. Employers get a tax break in the year they contribute. Not sure how my ineligibility affects their tax filing if they could not know. But… IRS Notice 2008-59, 2008-29 I.R.B. 123, questions 23 through 27, does state that it is very rare for employers to receive their HSA contributions back. That is now additional taxable income for me. So it seems that I got my HSA bonus, whether I deserved it or not.


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## MrHSA (11 mo ago)

It sounds like you are heading in the right direction. Check with your tax advisor to make sure. The reason the money may be taxable is that you were not taxed on it when it was deposited in your HSA. That's because employer contributions are "pre-tax" and exempt from income and payroll taxes. If you were to keep the excess money, the IRS might try to "tax it back" as income but only if the problem is not corrected, which it sounds like it is going to be. I'm told the IRS does not make the employer go back and try to fix the payroll tax part that you (and they) avoided the first time because it gets complicated. Hope it all turns out well in the end.


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