Here is what my HSA provider said:
“In order to remove any contributions from a prior tax year, you should complete the Distribution of Excess HSA Contribution Form. You'll enter the tax year as 2019, and the total amount of excess contributions made to the tax year. Since you have already maxed your contributions for tax year 2020 and 2021, you could choose to have the funds distributed from your HSA to correct the excess contribution.”
The above sounds a lot like option 2 that you outlined. I would prefer to do option 1 since it avoids the 20% penalty. However, since my 2020 contributions have already been maxed, I would need to withdraw the excess contribution from 2020 in the amount of $X, where X is the excess contribution from 2019. Since my 2019 excess contribution automatically rolls over towards 2020, this would ensure that my HSA does not have excess contributions for 2020. However, I would still pay the 6% excise tax for the 2019 excess contribution. Why is this, if reducing my 2020 contributions such that X + 2020 contributions = the max contributions ($3550)?
Let’s say that I do what is outlined above and pay the 6% excise tax on the excess 2019 contributions when filing my 2020 taxes. Then, when I file my 2021 taxes, since 2020 will not have had an excess, will I officially have this cleaned up?
Additionally, they said:
“there is type 2 1099-SA produced for situations like this. They are produced after the tax deadline is over. While you will still want to file the accurate numbers, the forms will be sent you you and the IRS on your behalf.”
Does filing the accurate numbers mean I enter a 1099-SA into turbo tax as if I received it when filing my 2020 taxes, or do I wait until filing taxes for 2021 once I have the actual 1099-SA?
