Hi Bill!
The original excess was generated for the 2018 tax year, right?
Correct. In filling out my taxes for the 2018 tax year, it was determined that I was over the allowable contribution amount by $1700. I paid the 6% penalty that year. The next tax year, I realized the $1700 excess carried over and I paid 6% penalty on that same $1700 again. I was determined to avoid the penalty on my 2020 tax year and, as mentioned above, took a distribution of $2100 during the year that I applied to Qualified Medical Expenses. While filling out my taxes for 2020, the software asked for the total value of the HSA at the end of 2020 which by that time was $2100 less than it was the year before. I thought that meant I was under the excess contribution limit. Nevertheless, I was still assessed 6% tax liability on the $1700. The software did not address the situation further. I'm gathering now from discussing with you, that the QME distribution in 2020, even though greater than the amount of the excess contribution, and even though it resulted in my HSA balance being under the allowable limit, was not effective in curing the $1700 excess contribution penalty.
A. what kind of HDHP coverage did you have in 2019 and 2020?
I had none.
B. What were the amounts you contributed to your HSA in 2019 and 2020 (if any)?
Zero
C. Is your HSA now empty?
No. I have a balance but it is at least $1700 less (by $2100 to be exact) than the maximum allowable as calculated on my 2018 and 2019 taxes.
I take this to mean that you did not make any contributions to your HSA in 2020. How about in 2019?
Correct--only distributions for QME of $2100. I guess my only option now is to make a distribution for NON-qualified medical expenses, as you mentioned, since applying the excess to a subsequent year's HSA doesn't seem to fit my circumstances. There is no excess to apply. I already reduced my HSA by the excess amount; I just applied it incorrectly if I'm understanding you correctly (?).
Thank you so much @BillM223 !!!!
Greatly appreciated as always.
