Employer error on FSA/HSA

[Xinlitik]

My wife’s employer incorrectly used her HSA for contact lenses when it should’ve charged the FSA (they provide one debit card for both accounts and claim they will know which to draw from). She’s spent the last 60 days getting them to fix this, and the latest is they’ve now deducted the expense from her FSA but instead of refunding the HSA, they have deducted the expense from it twice…

Anyway, we were wondering how to report this on our return. It seems there is no reporting requirement for FSA uses, so would we just need to report that the HSA had no distributions, assuming the benefits manager restores the money before april 15? Do we need to wait until a corrected 5098 is released? If it isnt corrected before april 15 would we report it as a distribution and then file an amendment?

thanks

[DaveF1006]

As a precaution and as a best practice, I would suggest reporting the distribution and then amend after you receive the corrected 5098, if received after April 18.

If you report as if there wasn't a distribution, the IRS may make an inquiry and you can explain what happened. Personally, I would rather not receive any notice from the IRS even if I were able to explain my action.