All valid points made and much appreciated. Here's why I think it'll play out like I mentioned:
- I removed the excess contribution in March. Had my employer ignored the removal and not issue a corrected W2 (preferred), TurboTax would have treated the excess contribution removal as ordinary income and I would have paid taxes when I file next week.
- Instead, my employer provided a corrected W2 with only boxes 12W (original and corrected) shown. This means the income (the amount of excess withdrawn) does not show up anywhere in 2021 because boxes 1, 3, 5 were not increased on the corrected W2. Therefore, taxes on the excess will not be paid when I file next week.
- The excess was withdrawn in 2022. Since the 2021 W2-C did not capture the increase in boxes 1, 3, 5, the withdraw becomes a taxable event for 2022. The HSA administrator will issue a 1099-SA that will stipulate a withdraw due to excess contributions. That will be taxable for the 2022 tax year and payable when I file in 2023. I may owe a penalty - not sure on that one.
This is definitely unchartered waters for me. If anyone has additional comments/suggestions, glad to hear them out. I still have a week before I file.
And again, I sincerely appreciate the postings; hope this discussion helps others as much as it has helped me.
