@meandmine9
"The Gross distribution in Box 1 of my 1099-SA includes all distributions (even the erroneous ones)," - this is correct. However, read the dmertz answer just above your post. If you have paid any medical expenses that were not reimbursed by insurance since you began your HSA, you can apply the misdirected money to those expenses, since you are allowed to reimburse yourself for such things from the HSA.
Be sure to document both the distribution ("bad" use of the card) and the expenses they apply to and stick it in your tax file in case you are ever asked.
Otherwise, as you have seen, distributions for amounts that were not for qualified medical expenses are not only subject to federal income tax bit receive a 20% penalty...so you are motivated to find those expenses that I just referred to.
Alternatively, you can ask the HSA administrator to treat each of those "bad" expenses as a mistaken distribution, but as dmertz notes, your HSA custodian does not have to accept it - call them and ask. (If they do accept it, then you have to pay it back, which may be a whole new problem for your cash flow.
Yes, you probably have made excess contributions. You can either withdraw them (if you can), or carry them over to next year with a 6% penalty. NOTE: any amount carried over reduces your HSA contribution limit for next year, so watch your contributions! P.S. your HSA custodian will not know this (it's your tax return, not theirs), so you have to limit your contributions yourself.
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