I input contributions as contributions. Having no distributions from the HSA, I entered no distributions.
It seems the problem is that I did not remain an eligible individual for the 12 months following the 2021 contribution. From the Testing Period part of the IRS instructions for Form 8889 (https://www.irs.gov/instructions/i8889#en_US_2021_publink37971yd0e194:(
If you fail to remain an eligible individual during this period, other than because of death or becoming disabled, you will have to include in income the total contributions made that would not have been made except for the last-month rule. You include this amount in income in the year in which you fail to be an eligible individual. This amount is also subject to a 10% additional tax. (See Part III.)
It's also addressed in Pub 969 (Publication 969 (2021), Health Savings Accounts and Other Tax-Favored Health Plans | Internal Revenu...).
The TT on-demand help for form 8889 does address this, but puts it on the instructions for form 8889, line 18:
Line 18:
You must remain eligible for the 12 month period following any contribution made to your HSA. If you fail to be a qualified individual within the 12 month period the amount must be included in income and is subject to a 10% penalty.
So, in the end, I think the calculation is correct, despite the TT instructions and help not being abundantly clear.
