dmertz
Level 15
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Deductions & credits

To eliminate the penalty before exhausting the HSA you must make an ordinary taxable HSA distribution equal to the excess.  The ordinary HSA distribution is made taxable by not claiming that it was applied to any medical expenses.  If you are under age 65 at the time of this distribution (probably not if you are on Medicare), the taxable distribution is also subject to a 20% additional tax.

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