Retirement tax questions

"I made a catch-up contribution of $1250 to my HSA for 2019 in order to maximize my total allowable contribution to $3500"

Unfortunately, your HSA custodian did not allocate this 1,250 to 2019, for whatever reason. So it went to 2020 for a total contribution of 5,800. Unless you stress that the contribution is for the previous year, their default action is to allocate the contribution to the current year (then, 2020).

You might contact them to point out this mistake (assuming it was their mistake) and see if they will do anything about it, but in my experience, since it's a year or more old, they probably won't.

"2020, ... box2=$5800"

This shows that your HSA custodian thinks you contributed 5,800 to your HSA for 2020.

"Yes, but I just paid the extra income tax on the excess and tax on its dividends."

So you carried over the excess to 2021. 

The effect of the carryover is varied. What it does on the 8889 (although the form does not show this) is it reduces the whatever annual HSA contribution limit you would otherwise have. So in 2021, your real annual HSA contribution limit is 3,350 (4,600 - 1,250). Your 2021 contribution of 4,600 exceeded that, creating a new excess HSA contribution of 1,250.

As you seem to know, you can reverse the effects of an excess contribution if you withdraw the excess by the due date of the return (including extensions). BUT, you can't get rid of a previous excess contribution that way, when you missed this due date deadline.

You might think that you could just withdraw the new 1,250 excess and be done with it, but you can't. That's because this is still the 1,250 excess from 2020, and you have missed the original window to withdraw.

So you have two choices: easy but expensive, and not so easy, but cheaper.

1. Easy but expensive. Take a distribution of the 1,250 now. When the 1099-SA comes, tell TurboTax that you didn't spend any of this on qualified medical expenses. TurboTax will add the 1,250 to other income and also penalize you 20%, but at least the excess will be gone.

2. Not so easy but cheaper. Let the 1,250 carry over to 2022 and in 2022 BE SURE TO REDUCE your usual HSA contributions by 1,250. In this way, you do pay 6% one more year, but then the excess is gone.