@gooseontheloose
actually, there is a way to fix this on your 2020 tax return, but only if you applied for an extension of the deadline to file your tax return. The 2020 deadline was May 17, 2021. If you requested an extension, using an online procedure, or mailing in form 4868 before May 17, then your filing deadline has been extended through October 15. Also, if you made an estimated payment on the IRS website before May 17, that also grants you an automatic extension to October 15 even if you did not file form 4868.
When you said that you were just now catching up from 2017, I assumed that you had not filed an extension request for 2020, but that assumption may have been incorrect.
If you did file an extension request for 2020, then you can take the excess withdrawal for 2020 instead of taking it for 2021. You would contact the HSA bank and ask them to return $3450 of your 2020 contribution as an excess contribution. If the bank says they can’t do this because it is after the May 17 deadline, you would point out that the deadline to return excess contributions is the deadline for your tax return including any approved extensions. By getting an approved extension, you move the deadline to take a return of excess contributions for 2020 all the way back to October 15, 2021. (The bank might want to see proof that you have an extension, or they might want you to sign an affidavit that you have a valid extension, so that if they are audited, the trouble falls on you instead of them.)
The procedure would then be the same as I previously outlined for 2021. The bank would return $3450 of your 2020 new contributions as a return of access, and the bank would also include the earnings from that 2020 contribution. Then, you would apply the old carryover excess to your 2020 contribution limit. You would not have to pay the 6% penalty on your 2020 taxes. Since the earnings on the excess were physically paid to you in calendar year 2021, they would be reported on your 2021 tax return.
If you didn’t get an extension on your 2020 return, you can forget I mentioned this, and proceed with the original outline.
