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Deductions & credits
OK.
1. It is too late to call the HSA custodian and have them switch this distribution to a withdrawal of excess contributions. In my experience, custodians won't change prior year events.
2. Because of this, the paperwork won't be right in any case. However, we should be able to make a reasonable approximation for the IRS by doing one of the following:
2.A. amend your 2022 return to show that you, in fact, withdrew that excess in a timely manner. After you do this, though, you will need to reimport your 2022 tax data into your 2023 return (yes, start your 2023 return over again). If you filed an extension, this will not affect it. You would do this to clear the long-term HSA excess carryover for 2023.
2.B. You should have received at some point a 1099-SA for the withdrawal of the $681. Did you already get it? If so, did you enter it on your 2022 return? It would have been normal to wait to enter it on your 2023 return. OK, if you have a 1099-SA for the $681 - even if it is included in a 1099-SA with other qualified medical expenses, you can enter it in your 2023 return, and indicate that $681 was not for qualified medical expenses. This will add the $681 to Other Income and penalize you 20%, but, again, the long-term excess would be eliminated. This is probably close to what the IRS would want you to do, if it ever came to an audit (the IRS seldom complains when you pay tax).
NOTE: If you entered the 1099-SA on the 2022 return, and you are amending the 2022 return anyway, you won't have to do this 2.B step...just document what you did any why and stick it in tax file.
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