"This essentially means, I paid taxes twice + penalty, right?" - Yes.
I have been mulling over if you are right that "I just feel given the amount is small, it is okay to just do this and get done with that." The problem as I see it is that if an auditor looks at your paperwork and the paperwork of the HSA custodian show that there was an excess in HSA contributions, and that they were not withdrawn before due date of the return (because you did not use the correct paperwork). This may look like the excess should be carried over to the next year, and you dinged 6%.
However, one way to terminate the carryover is to take a distribution and say that it was not for medical expenses (so gets added to Other Income and you get dinged 20%). What I haven't figured out yet is the timing - will this work even before the excess gets carried over?
Plus the auditor will be confused by what you are doing. If you do what I said, it will be obvious to the auditor that you are fixing the problem.
P.S., IRS auditors don't look to see if things even out at the end. In almost 20% of audits, the taxpayer gets a refund, because the auditors are precision-oriented.
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