Expecting a lot of medical expenses in 2017, I signed up for both the medical FSA and HSA offered by my employer. Unfortunately, my employer did not mention that it was against the rules to have both.
When I discovered my error 11 months later, I asked my employer if I could back out of the FSA. They said this was not possible. They said that the only thing they could do is stop my automatic HSA payroll deduction.
So I need to undo the HSA somehow. Reading other similar answers it sounds like I should withdraw the remaining HSA balance as an overpayment.
This makes sense to me, but there is one other complication: my employer contributed $1000 to the HSA.
Here is my plan, but I'm not sure if it right.
- Withdraw all HSA funds as an overpayment.
- When I do my taxes, make sure there is no deduction made for HSA contributions.
- Count the $1000 as other income, paying taxes on it.