You are awesome @BillM223 - appreciate the thorough response.
I agree with you putting back the $800 as personal contribution is not doing me any favor.
If I hear you right, you were proposing two options:
1. File 2021 return as what TT suggests now, which does not add the $800 excess contribution to Other Income. Then when I file 2022 return, I will pay the tax on $800 as Other Income + 10% penalty.
2. Use the $800 for medical purpose and keep the proof/receipts.
What I don't understand with option #2 is I still have $800 excess distribution that should not be in the HSA in the first place (hence cannot be used tax free). My understanding is this $800 spend is tax free only if it is HSA eligible money AND spend on medical needs.
I am going to just keep it simple with option 1 and pay the $80 penalty in 2023.
