As I understand it, the issue is what to do about the $1,350 excess HSA contribution for 2016.
Regardless of what you do, your tax return will have to include as Other Income the $1,350 if that $1,350 was excluded from box 1 of your W-2. Your penalty is based on the lesser of the excess contribution remaining in your HSA or the year-end balance of your HSA. With only $833 remaining in your HSAs on December 31, 2016, your penalty is 6% of $833 = $50. To eliminate that penalty entirely, you'll have to obtain a return of excess contribution of the remaining amount in the HSA. If you do not request a return of excess contribution and the $833 remains at the end of 2017, you'll have another $50 penalty for 2017.
