I see...looks like I made things worse for myself.
If I am able to get the HSA distribution treated as a mistaken distribution, would I still answer yes when TurboTax asks if I've taken any distributions, or could I answer no and skip that part?
If I'm not able to get it treated as a mistaken distribution and I do have enough medical expenses to make up for it, am I able to change the distribution code from 2: Excess Contribution to 1: Normal Distribution? Do I need to do this through my HSA provider, or can I simply change the distribution code when I go to file my taxes? You mentioned making a list of these expenses...do I submit this list of expenses anywhere?
Additionally, could I just re-code it as 5: Prohibited Transaction and pay the 20% penalty and be done with it? Similar to my question above, what is needed to get it re-coded? This would be a last resort.
*** UPDATE ***
I called my HSA provider and it seems they will honor a request to treat it as a mistaken distribution. However, they said that the corrected forms will not be available until May of this year. I don't understand how to go about reporting both the initial distribution and the return of funds as part of a mistaken distribution. Would I just fill out the information using the 1099-SA I was given, or would I proactively indicate a gross distribution and earnings on excess contributions of 0 and check the box indicating it has been corrected? When next year (tax year 2022) rolls around, will I need to do anything to report the mistaken distribution that was returned? Can you please help me understand this process?
At this point, if there is an easy way to convert the distribution code from 2 to 5 and just pay the penalty and be done with, I'd consider it. Please let me know if this is possible.
