In 2024, I signed up for an HDHP through my employer, as well as opened an HSA through them. From June 2024 to Oct 2024, I contributed $2075 to my HSA. During this time there was maybe $0.05 of growth from interest, while $5 was deducted for fees. I wasn't allowed any investment growth, since the provider needed $4000 to allow investment options.
It turns out I am ineligible to contribute to an HSA due to being covered by my wife's FSA for ALL of 2024. In December 2024, I called my HSA provider and had them close my account, and send me a check for $2070, my original contribution minus fees. I have discontinued my HDHP in Jan 2025, opting to be covered under my wife's PPO.
Now I'm filing my 2024 taxes, and they sent a 1099-SA for $2070 (box 1), blank (box 2), with a distribution code 1 (box 3). I've been calling them to fix this to distribution code 2, but they refuse, since they only see "my information", which is I had an HDHP, and had "no information about any other disqualifying factors", even after I told them I was covered by my wife's FSA.
I played with the numbers, pretending to have never contributed to my HSA, and the only tax difference was the 20% penalty for unqualified expenses, about $414.
In my situation, am I correct that my $2070 should be reported with distribution code 2?
How do I file this for my 2024 taxes? Or do I wait to fix it next year? TurboTax isn't letting me edit the field to report withdrawn excess contributions if I use distribution code 1, even in Form mode.
Or did I mess up and I'll have to pay the 20% penalty?
PS, I have already filed my 2024 taxes, because I'm not sure if my HSA provider will send a corrected 1099-SA in time. I figured better to file on time and amend later. At least I won't be penalized for being late on taxes. I haven't done state yet though, but I'll probably do the same thing and file first, and amend later.
