Deductions & credits

I am having rewrite my answer.

There are two issues:

1. The transfer to the HSA which is a contribution.

2. The transfer out of the HSA which is a distribution.

You can contribute to an HSA whenever you like, but you are subject to annual contribution limits. I don't know if this first transfer exceeded the annual limit for you or not. You should report it on the "Let's enter [name]'s HSA contributions" screen on the second line (the first line is the code W amount in box 12 of your W-2).

This may or may not trigger an excess contribution message (it depends on what else you have contributed), but if it does, then, if you have the money in the HSA,tell TurboTax that you will withdraw the excess before April 15th 2020. Then contact the HSA custodian and request a "withdrawal of excess contributions". They will send you a check for the excess being withdrawn.

Note that this means that whatever amount was not in excess is still considered a contribution, and you can't undo that. At least you will get a tax break from it.

As for the second transfer, this was a mistaken distribution, plain and simple. The first thing you should try is calling the HSA custodian and explaining that you did not intend this distribution at all - you were just trying to fix your mistaken contribution. Request that it be treated as a mistaken distribution.

Be nice, because they don't have to accept this request. But if they do, then they will ask you to send them a check for the mistaken distribution. If you can send it to them, then they will issue you a corrected 1099-SA. This will prevent you from having to enter that this was a distribution for something other than medical expenses - and get rid of the 20% penalty, too.

So, on the one hand, you may be getting some of the first transfer back as a withdrawal of excess contributions. On the other hand, you have to send the custodian the total amount for the second transfer (if they accept it as a mistaken distribution). Obviously, the larger the excess is, the easier it will be to pay back the mistaken distribution. If the entire first transfer is excess contribution, then this whole thing is a wash - you just have to do it this way so that the HSA custodian will get the paperwork correct.

But do try to pay back all of the mistaken distribution back, because any part you can't pay back you will be taxed on and have a 20% penalty.

Also, please ask the custodian to see if they can block you from being able to transfer money out of the HSA. You want to do this only on purpose, and one way to do this is to force yourself to have to call the custodian if you ever need to be reimbursed for something. This should not happen often (if ever) if you have the debit card to use for regular medical expenses.

So, two things to start with:

1. enter the first transfer as a contribution and see what it does.

2. contact the custodian about the mistaken distribution.

Let's see if you have the cash flow to pull this off.