Thank you for laying this all out so clearly. It makes sense and will help me make a decision about what to do now. I did have some medical expenses in 2020 and so far in 2021 which we've paid out of pocket. I assume I can subtract these from the amount I'm returning now as a mistaken distribution?
Still a bit confused about exactly which monies incur the 6% penalty each year. Is this correct:
2019 tax return: I owe 6% on contribution made in Dec 2019.
2020 tax return: I owe 6% on distribution amount I'm now returning without including 2021 expenses (so total 2020 distribution minus just my 2020 medical expenses).
2021 tax return: I'll owe 6% on my HSA account balance on 12/31/21?
Also, just double checking:
As long as I'm paying this 6% penalty, I can use funds from my HSA for medical expenses and still be claimed as a dependent on my parents' tax returns even though I've never made any valid HSA contributions?
