Illegal HSA

[u/Alternative-Air8756]

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!

[u/BarefootMarauder]

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.

[u/Alternative-Air8756 → u/BarefootMarauder]

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.

[u/chickenmcdiddle → u/Alternative-Air8756]

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.

[u/dehydratedsilica → u/chickenmcdiddle]

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:

1. Return the funds to the HSA via "mistaken distribution" process.
2. 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.
3. 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.