I really appreciate all your help! Below is the link to one of the articles I read on the subject, the last section being the pertinent part (I believe).
Removing HSA Excess Contributions — Ascensus
There was another article I read last year that specifically mentioned taking a distribution from the HSA for QUALIFIED medical expenses was one of the ways to correct an excess contribution in a prior year. I can no longer find the article so I'm suspecting the information was wrong and the article deleted. I will keep searching. It was not hard to find earlier so it was from a reputable source.
By way of some background, a prior employer (only) contributed to my HD HSA account. I no longer work for that employer. In my 2018 tax year, I realized via turbotax my HSA account balance was above the allowable limit. I paid the 6% tax on the excess contribution. The excess stayed in my HSA account--no further contributions and no distributions. In 2019 tax year, I realized the same excess was being taxed 6% again. I did not know this would happen. I researched as mentioned above and found an article indicating that the excess would need to be removed from my HSA to avoid the perpetual tax penalty. One of the ways it said to do so was take a distribution and use it for qualified medical expenses. If I used the distribution for UN-qualified medical expenses, I'd have to pay 20% tax on the amount distribution. I spent my HSA distribution on qualified expenses during the 2020 tax year and received a 1099-SA for the distribution amount--which was greater than the amount of the excess contribution. I thought this would thus eliminate my tax liability for the excess contribution since it had been 'removed.' Unfortunately, after filing my taxes today using turbotax, I see that the same excess contribution amount was taxed again and that going through the turbotax software did not take into consideration the distribution I used for qualified medical expenses. And that's where I am now, trying to figure out what I did wrong or if there is a hole in the turbotax algorithm, and if I need to file an amended return. Thank you again for all your gracious assistance!
