Thanks for the reply! I have a few questions though:
>> Don't bother returning the distributions, as long as you used them for qualified expenses. The penalty for making unallowable contributions is 6% of the contributions, or 6% of the remaining balance, whichever is lower. So you don't save anything by returning the distributions it just makes extra paperwork.
My understanding is that if I returned the distribution back before tax due day I shouldn't need to pay the 6% penalty. Isn't that true?
>> Your 1099-SA does not change because that represents the money you actually received in 2019 and that doesn't change.
The 1099-SA only presents the distribution but not the contribution. It doesn't really say how much I received isn't it?
>> And you must enter the 1099-SA or you will get an automatic mis-match letter from the IRS. Just enter your contributions from your W-2 and any extra contributions, and enter your distributions, and check the box that yes, they were used for qualified expenses. Answer that you did not have qualifying insurance. Turbotax will ask if you plan to remove the excess from your account before the July 15 deadline. Say yes. Turbotax may ask you how much you removed (I haven't done this section myself) but it should also ask the closing balance. So if you remove less than the contribution amount but your closing balance is zero, there won't be a penalty. The contributions will be added back to your taxable income.
Thanks. I tried entering back the 1099-SA amount and followed what you described. The final amount looks correct. However if I don't put in the 1099-SA, and similarly marked myself as not having HDHP, the final amount was also the same. Both showed that my total contribution was excess (correct), and the difference was if I entered 1099-SA it shows I have made distribution, while the other shows zero in distribution.
My confusion now is if I returned the distribution (which as mentioned I think I won't need to pay 6% penalty), doesn't it mean there's actually no distribution happened and I shouldn't put that amount in my tax report? But according to you sounds like I should still list that distribution or there will be mismatch at IRS? Thanks!
