Thank you BillM223 for your helpful response. I decided to carry forward the 2019 $66 excess contribution to my 2020 contributions and submit a second return of excess contributions request to the HSA brokerage firm for the $66 plus earnings, as I am not eligible to contribute to an HSA in 2021 and wanted to clear out the $66 balance.
I am still unclear as to what numbers should be reported in Form 8889 Part II HSA Distributions lines 14a and 14b. Line 14a says to "Enter the total distributions you received in 2020 from all HSAs." Line 14b says to "include any excess contributions (and the earnings on those excess contributions) included on line 14a that were withdrawn by the due date, including extensions, of your return." If I understand your prior response correctly, line 14a will be blank in my 2020 return since the return of excess contributions plus earnings were distributed in February and March 2021. It seems like 14b should be blank as well since there were no excess contributions and earnings included on line 14a. If this is correct, then in my 2021 return, wouldn't I enter the sum of the return of excess contributions plus earnings into both lines 14a and 14b, resulting in $0 taxable distributions? This can't be right, as I am supposed to pay tax on the earnings. I can make it work by reporting only the excess contribution on line 14b, but that doesn't seem to be what the instructions indicate to do.
I presume that the 2021 Form 1099-SA I will receive in 2022 will show the sum of the two excess 2020 contributions plus their earnings in Box 1 for Gross distribution. Could you please confirm? Frankly, I'm confused as to whether I am supposed to report this distribution of the return of excess 2020 contributions anywhere in either the 2020 or 2021 tax return given that they were distributed prior to the 2020 tax return filing date and subtracted out from the 2020 contributions to be reported in the 2020 tax return. It seems like the excess contributions should not be considered taxable income in either 2020 or 2021 since I did not receive deductions in my 2020 tax return for those excess contributions?
