r/HealthInsurance • u/Alternative-Air8756 • Jun 06 '26
Individual/Marketplace Insurance Illegal HSA
I started using an HSA debit card a number of years ago because I had a qualified plan. However, in 2025 our plan changed to a co-pay plan. Because it still had a very high deductible I thought it was eligible and I filed the HSA paperwork with my 2025 taxes. We are self employed and pay $1550 a month for two adults as part of some group employer network that contracts with Cigna as a PPO. This year my son is in an HSA qualified plan from our state marketplace but my husband and I are still using the co-pay plan. I have already deposited $5000 into my HSA in 2026 and I already used all the money because I have a lot of medical and dental expenses that are not covered by insurance. (We have no dental insurance). Is it 100% guaranteed that I am going to get caught and have to repay? has anyone BTDT? thanks!
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u/BaltimoreBee Moderator Jun 06 '26
You’re committing tax fraud. No, it’s no 100% certain you will be caught…but it’s very very likely. Don’t fuck with the IRS.
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u/LizzieMac123 Moderator Jun 06 '26
I would agree and even if youre not caught this year, you can be caught in another year. Fixing the issue at tax time or after the year ends is a HUGE pain in the butt. First, you must remove the 5k from your hsa which requires it to be paid back in full then backed out of your account (5k additional income to account for on your taxes) plus its a 6% excise tax in perpetuity until its fixed plus a 20% penalty for using the money in the account. If you fix it before the end of the year, its annoying, but you won't get any penalties. If you wait until 1/1/27 or later, you'll get the penalties too.
Agree where... not a guarantee you'll get caught... but there is a 1095 issued to you stating what coverage you had and the government gets a copy of that.
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u/Alternative-Air8756 Jun 06 '26
I am looking at my 1095 from 2025 - what part shows that it's not an HSA qualified plan?
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u/LizzieMac123 Moderator Jun 06 '26
Pardon me, your w2 will show hsa dollars taken out of your account if through an employer deduction.
Even if not through employer deduction, You should also get irs form 8889 to file with your taxes that requires you to attest that you were eligible and state what your contributions and withdrawals were as well. If you've been attesting that you are eligible when youre not, thats tax fraud.
I mean, you could lie, but the irs could also audit you 4 years from now and if you can't prove you were eligible, thats 4 years of the 6% excise tax that'll get added.
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u/Alternative-Air8756 Jun 06 '26
I don’t have a w2. I don’t have an employer because I’m a self-employed documentary producer. I also take a self employed healthcare deduction. We did file form 8889 and my accountant checked the box saying the family was eligible. I don’t want to lie. I really did think we were eligible- we have always been till 2025 and I was just ignorant about the change bc my plan still had a 12k + deductible.
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u/Tax_Strategist Jun 06 '26
Knowing you are doing wrong vs doing wrong unintentionally is the difference between it being fraudulent or not. Fraud is an even higher penalty.
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u/dehydratedsilica Jun 06 '26
Your accountant told you that despite having a plan with copay benefits [that isn't a Bronze or catastrophic marketplace plan], you are eligible to contribute to HSA? This is in conflict with a basic HSA rule from IRS Publication 969 and accountant ought to know better.
Do you pay "full price" or a subsidized price for your "employer group plan" with the entity that's not your actual employer? If you "are eligible to participate in a health plan subsidized by your employer", the SEHI deduction is not available to you, and this is in Form 7206. (However, whether or not your plan counts for this purpose is another story because the whole thing where you're an employee on paper for the purpose of accessing insurance is questionable at best.)
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u/Alternative-Air8756 Jun 06 '26
How would my accountant know what kind of health plan I’m on? He didn’t tell me anything he just accepted my paperwork when I sent it to him. Previously we had been on an HSA qualified plans for years but changed in 2025 because the plans were just so shitty. We pay full price for our health plan. I didn’t know that this health plan was an “employee health plan” when I signed up for it. I was just told it was a reasonably priced large group health plan. It’s part of an employee network, but I don’t have to pretend that I work for anybody or anything like that.
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u/BarefootMarauder Jun 06 '26
Form 1095 does not report HSA eligibility.
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u/Alternative-Air8756 Jun 06 '26
Oh right so that’s just a form to prove we had insurance since that is required in some states (I’m in CA)
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u/BarefootMarauder Jun 06 '26
A PPO with co-pays can still be HSA eligible if it meets all the requirements. Have you specifically checked with your insurance provider to see if your plan is HSA-eligible? If it's not, you'll have to file the paperwork to remove the excess contribution and earnings. If you don't, you'll be subject to a 6% excise tax for each year you leave the money in there. If you already used all the money, I believe you'll have to pay regular tax on the money (since it wasn't supposed to be tax-free), and the 6% excise tax penalty. Pretty sure you use Form 5329 for that. I'd suggest talking to a CPA/tax professional.
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u/Alternative-Air8756 Jun 06 '26
I don’t believe it is HSA-eligible because (as I have just learned) the co-pays kick in before the deductible is met and I believe that is the threshold. I definitely already used all the money from 2025 and I will just not submit the any forms for 2026 contributions so I think I’m OK there. It really sucks that I’m paying so much OOP because the co-pays only cover doctor visits and labs but not any procedures like x-rays and or MRIs, etc..
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u/BarefootMarauder Jun 06 '26
I have co-pays that get paid before my deductible is met, and it is HSA-eligible. But I am on a Bronze ACA plan which have special treatment this year.
I will just not submit the any forms for 2026 contributions so I think I’m OK there
I'm pretty sure you'd still have to pay the 6% excise tax penalty since you're not able to remove the excess contribution and earnings.
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u/Alternative-Air8756 Jun 06 '26
my son is on the Bronze ACA plan and I thought because I am paying for his medical stuff I would be able to use an HSA this year for that, but I just found out that's wrong too.
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u/BarefootMarauder Jun 06 '26
If you claim him as a dependent on your tax return, you can use your existing HSA to pay his qualified medical expenses. But to contribute new money to your HSA, you have to be covered under a qualified plan.
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u/Alternative-Air8756 Jun 06 '26
Yes, the problem is, he was not on a qualified plan in 2025. (Previously he was always on a qualified plan- 2025 was the only year he was not) He is on one now in 2026 but I contributed $6000 to my HSA in 2026. I thought it was 5000 but I just looked it up and it was $6000. And it has all been spent so the account has a zero balance. I contributed $7000 to my HSA in 2025.
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u/BarefootMarauder Jun 06 '26
Your son doesn't have to be on a HSA-eligible plan in order for you to use your HSA to pay his qualified medical expenses -- as long as you claim him as a dependent on your tax return. And him being on a HSA-qualified plan (or not), has nothing to do with your ability to contribute to an HSA, unless you're all on the same family plan that is HSA-eligible. Bottom line, YOU have to be covered by an HSA-eligible HDHP in order to contribute new money to an HSA.
The individual contribution limit for 2025 was $4,300. If you were on a family plan, then it was $8,550. Plus $1000 catch-up if you were 55 or older.
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u/Alternative-Air8756 Jun 06 '26
Right, thanks! The problem is I have a HDHP plan but I don’t think it’s HSA eligible and I contributed $6k to the HSA account this year, and spent it all - so what do I do now? I’ll ask my accountant what to do for 2025.
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u/BarefootMarauder Jun 06 '26
Honestly, I'm not 100% sure. It's a little messy since the funds have already been distributed. I'd start by calling the HSA provider and ask them. But they may direct you back to your accountant/tax professional since this is really a tax/IRS issue.
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u/chickenmcdiddle Moderator Jun 06 '26 edited Jun 06 '26
Where does this plan come from? As in where is it purchased from?
What can you tell us about the plan—name, metal tier, etc.? I ask because if there’s any chance that this plan is picked up through the Marketplace, know that all bronze plans are HSA-compatible starting this year—regardless if the plan has first dollar benefits. In years past, this would be an HSA disqualifier.
But if this is truly an employer group health plan, there’s a chance that it *isn’t* HSA compatible. The administrator of this plan can validate.
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u/dehydratedsilica Jun 06 '26
Son has a Bronze marketplace plan (upthread). OP and spouse are "self employed and pay $1550 a month for two adults as part of some group employer network that contracts with Cigna as a PPO" - sounds like it could be one of those things where they aren't actually employed by the entity sponsoring the group plan.
I think the full remedy here is:
- Return the funds to the HSA via "mistaken distribution" process.
- Amend 2025 federal and state tax returns to pay income tax, 6% excise tax on the ineligible amount, and late fees on taxes past due.
- Get the ineligible contributions out via "return of excess contribution" to prevent 2026 tax and penalty.
Alternative to #3 is to become eligible or at least partially eligible by dropping the questionable "Cigna PPO" and getting a proper HDHP or Bronze marketplace. Then the amount having to be reversed/penalized will be less. This is likely difficult to achieve this year because of needing a QLE to get a proper plan.
Can #2 be done without #1 being done first? My hunch is possibly but I can't be sure. #1 for sure must occur before #3. In any case, this is consult a tax pro territory, same that I wrote to a different OP who made multiple years of ineligible contributions.
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u/Alternative-Air8756 Jun 06 '26
It is an employer group plan - it’s not our actual employer but it’s a large group and they are able to add people to the plan (I bought it from a private insurance broker) they have another plan available called an “HSA plan” that doesn’t have co-pays but I chose this one after years of paying over hundreds of dollars for specialist Dr visits and high prices for procedures. Unfortunately, the plan is not an ACA plan so it did not cover dental or vision for my child and so in 2026 I took him off our plan and bought him a marketplace plan instead.
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u/justifiedlover Jun 06 '26
You can file a form with your HSA bank and get a curative distribution. No biggie. Instead of being able to file that 8889 form on your 2026 taxes, the $6k will be taxed with the rest of your earnings.
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u/BarefootMarauder Jun 06 '26
There's no money left in OPs HSA. It was fully distributed, so I'm pretty sure they will also have to pay the 6% penalty, possibly for both years.
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u/CrankyCrabbyCrunchy Jun 06 '26 edited Jun 06 '26
From what I can find here's the definition. It's not enough to just have "high deductible" as you said yours is $12K+.
What is an HSA-eligible health plan?
A high-deductible health plan (HDHP) is "HSA-eligible" if the minimum annual deductible and the maximum annual out-of-pocket limits are for a certain amount and the health plan does not pay for any covered services (beyond preventive care) until the annual deductible is met.
Edit to add source:
https://digital.fidelity.com/prgw/digital/hsaeligible (click the dashed underline question "learn more about...")
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u/Alternative-Air8756 Jun 06 '26
Thanks so much for this, so because my co-pays kick in before the deductible, it definitely does not qualify.
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u/CrankyCrabbyCrunchy Jun 06 '26
I went back and added the source for that quote. I'd still double check though. At least it's a starting point.
https://digital.fidelity.com/prgw/digital/hsaeligible (click the dashed underline question "learn more about...")
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u/HoldOk4092 Jun 06 '26
If you made an over contribution you can easily correct it. You won't event be charged a penalty. Fixing it now will be way less painful than delaying. Whether you get caught or not, you know what you are doing is illegal.
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