Where do I put a VSP reimbursement on my taxes?

[dbmeyer]

Dear tax experts:

During 2021 I paid for eye expenses from an HSA and then was able to submit a claim to VSP and received a (partial) reimbursement in the form of a check for $112 (which I deposited in my savings). It seems to me that somehow that would need to be shown on my taxes.

I've not received any sort of tax form from VSP, nor is there any form available electronically when I look at my account on vsp.com. 

Are any of you aware if and how that $112 should be put into TurboTax?

Thank you for your time.

Blessings,

Doug

[DMarkM1]

You will need to contact your HSA Administrator to get a corrected 1099-SA for a "Mistaken Distribution."   These distributions are not only taxable at your regular income tax rates but you also are hit with a 20% penalty.  

Here is a link with more helpful information. You will need to reimburse the HSA for the reimbursement you received.  Once you get the corrected 1099-SA you will enter as normal under the "Deductions" tab using the "Medical" topic.

[dbmeyer]

Dear DMarkM1,

Thank you for your reply. Are you certain?

This was a purchase of prescription glasses. The company where I bought the glasses specifically indicated that I could pay for the glasses using my HSA, and that VSP may provide some reimbursement for the cost. The VSP reimbursement was done as prescribed by submitting my receipt from the prescription lenses/frames, and VSP then reimbursed me.

I do not understand where in this process there is a "mistaken distribution."

Can you please explain further? Thank you again.

Blessings,

Doug

[dbmeyer]

Dear DMarkM1,

I pressed "Post" a tad too quickly.

Your link to further information does not seem to work. Could you please provide a corrected link?

Also, to further clarify, I do not understand why this would be a "mistaken distribution." There was no mistake made as far as I can see. The company though whom I made the purchased charged exactly the correct cost. They explicitly indicated that since they did not have an agreement with VSP that I could submit my expense to them in order to get some reimbursement.

I certainly understand if I somehow need to take that reimbursement and either get that back into the HSA or otherwise declare it on my taxes (thus asking). But a penalty?  That might suggest that I've somehow done something wrong/illegal. And that would suggest that the company that sold me the glasses gave me poor advice.

Nevertheless, I plead ignorance of the nuances in all this tax law, HSAs, etc. Thus my asking. And all help to understand is welcomed.  Perhaps the end result of this lesson is not to apply for the VSP reimbursement when it has been paid via an HSA?

I certainly will contact my HSA and speak to them, once I (hopefully) have a bit better understanding.

Again, thank you.

Blessings,

Doug

[DMarkM1 · Accepted solution]

Absolutely.  Here is the link.  Also, the name "Mistaken Distribution" is just the name for any HSA distribution that was taken, but not qualified.  You would be penalized if you do not correct the HSA because you have taken a tax advantage that you did not qualify for. The penalty is a determent strategy to discourage those actions. 

You are correct nothing has been done improperly as long as you reconcile the HSA with the reimbursement.      

[dbmeyer]

Dear DMarkM1,

Again, thank you for the information and further explanation.

I did call my HSA provider this morning and relayed the information which you had stated. They indicated they understood perfectly and provided me a withdrawal correction form and process to move the VSP reimbursement in my HSA. They will issue a revised 1099-SA once that process is completed.

The process is now well under way. Many thanks to you!

Blessings,

Doug