I will have HDHP coverage from October 1st 2017 through May 31st 2018. I will have HMO/PPO coverage for all other months in both years. I have contributed over the $850 prorated maximum (if you fail the testing period) for 2017 (but not over $3400), and have not yet filed my 2017 taxes.
According to IRS publication 969, if I leave it as is, I will be subject to taxation on the excess amount exceeding my $850 prorated limit at my 2018 marginal rate + 10% penalty (on form 5498-T, I believe). However, if I withdraw the not-excess-but-will-be-excess before my filing date (and receive/file/pay tax on the 1099-SA code 2), I will be subject to a 20% unqualified distribution penalty for 2017 taxes, and the withdrawal might even technically be considered fraudulent, even though it would be made in good faith, attempting to comply with the rules.
How can I correct this and dodge the penalties? The contributions are already made, I'm just trying to undo them back to what the rules will be...once I fail the last month rule testing period in 2018, which I have not yet done, but WILL definitely do.
My 2018 contributions are within my 2018 prorated per month limits, so I don't need to worry about that again next tax season, thank goodness.
