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Deductions & credits
When you withdraw excess contributions, you get a 1099-SA with a distribution code of '2', and the earnings in box 2. Please don't try to calculate the earnings yourself - you can't (only the HSA custodian can do it).
When you get this 1099-SA,(it may be next year), then enter it into TurboTax, and the earnings will be added to Other Income.
If TurboTax reported to you this year that you had excess contributions, then this amount has been automatically added to Other Income on Schedule 1. You don't need a 1099-SA to report this.
Did you really withdraw $4,200 as the excess contribution? If so, that was wrong. If your excess that TurboTax told you about was $3,500, then that's all you should have asked the HSA custodian to withdraw. As I said above, don't guess at what the earnings are and withdraw. An HSA is not a savings account where you can willy-nilly withdraw money.
If you did withdraw $4,200 but your excess was only $3,500, then you have two choices:
1. find $700 in medical bills that were incurred after the start of the HSA that you paid with after tax dollars and document that the $700 withdrawn was for these bills.
2. Tell TurboTax that you had a $700 distribution that was not for qualified medical expenses. This will be taxed and hit with a 20% penalty.
I am not sure at this point that I fully understand your situation, so tell me if I got it right, and we can talk about the $700.
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