The next few questions/comments assume an extension is NOT filed.
"If the only distribution (1099-SA) that you received was for this mistaken distribution, leave it off your return, because it will confuse things when the HSA custodian issues a corrected 1099-SA."
This is indeed the only distribution I have for 2021.
"I assume that you told the HSA custodian that the initial withdrawal was for excess contributions. We now know that it wasn't (because it wasn't any excess for 2021), but I assume that the 1099-SA (have you received it yet?) will show a distribution code of "2". Go ahead and enter that as is. This will not make much difference to your tax return."
I have received a 1099-SA for this distribution with a code of 2. Your guidance to go ahead and enter that as is conflicts with your above guidance to leave it off of my return..which should I do?
Additionally, when TurboTax asks "What's the total value of all your HSAs," I would add the $1500 back in, correct? If I input the 1099-SA, I can see this confusing the IRS since I'm entering that it has the $1500 in it, but the IRS thinks I withdrew it based on the 1099-SA.
To clarify, the above approach requires me to submit my taxes by the April 18 deadline, wait for my corrected 1099-SA to come in May, and then amend my tax return. There is no way to file once before April 18 and not have to later amend my tax return, is that correct?
The other option is requesting an extension. The next few questions/comments assume an extension IS filed.
"Personally, I would file an extension (form 4868) as soon as you can, because life for you will be easier if we do all the following in the original return and not have to file an amendment. Just because an amended return has a due date of October 15th, doesn't mean you have to wait that long."
Some questions related to this:
1. My estimated federal taxes are quite high: 11k+. My understanding is that it will be penalized if I don't pay by April 18, regardless of an extension. Should I just pay my best estimate? Should I pay slightly over?
2. Assuming the answer to #2 is yes, the IRS website says "You can also get an extension by paying all or part of your estimated income tax due and indicate that the payment is for an extension using Direct Pay, the Electronic Federal Tax Payment System (EFTPS), or a credit or debit card. This way you won’t have to file a separate extension form and you will receive a confirmation number for your records." Would you recommend utilizing this, or filing form 4868 manually?
3. When I receive my updates 1099-SA and am ready to file my taxes, can I e-file through TurboTax still?
Thank you! I tried figuring this out last year as well, and this is the most helpful someone has been.
