1. What did you tell the HSA custodian in January when you withdrew the $814? Did you tell them that this was for a "withdrawal of excess contributions"? If not, the custodian will mark this as just a distribution, that should have been for qualified medical expenses, but it was not.
The HSA is not a savings account that you can just put money in and take at will. Instead, there are discrete rules about how you do this. In the future, please do not take out what you think are excess contributions unless TurboTax asks you to.
2. How much did you actually contribute in total? May I assume that it was $7,814?
3. One way that you would be told that you had $814 in excess contributions but could withdraw only $488 would be because you carried over an excess contribution from 2018 of $326. If so, this amount cannot be withdrawn now (that deadline was April 15, 2019). Instead, now you need to make it possible to credit that amount against a future contribution limit. In other words, if you carried over a $488 excess contribution, you needed to reduce your normal contributions the next year by $326, so that the carryover would be used up.
4. If indeed you said that you overfunded your HSA last year by $326, please note that if you withdrew that amount last year before 4/15/2019, that you should answer NO to the overfunding question. The question should be worded, "Did you carry over an excess contribution from 2018?" Id you withdrew that amount last year, you "cured" the overfunding, so don't report it.
5. When you withdrew the $814 without telling the HSA custodian that it was a withdrawal of excess contributions, then you made a distribution that was not for qualified medical expenses. Normally, this is charged not only income tax but also a 20% penalty. This is why you don't willy-nilly take money out of he HSA.
You can address this in one of two ways:
A. Call the custodian and report a "mistaken distribution" of $814. They don;t have to accept this, but if they do, they will ask you to send the $814 back to them and will send you a corrected 1099-SA in return.
B. Spend the $814 this year on qualified medical expenses. Document this show that you can show what it was for. This converts the bad distribution into a legitimate one for medical expenses - Note, these can be medical expenses that you paid with after-tax dollars at any time after you opened the HSA - even years ago. This is the most straightforward way, but requires that you document it well and keep the records in your tax file.
OK, now I need to hear back from you about how much you actually contributed, whether or not you reported an overfunding, and what you told the HSA custodian...
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