I think I’m clear on most of this, and if I am, you’ll want to check the “We’ll withdraw some of the excess…” box, then specify your $631.88 as the amount. Then you’ll be saving both the regular tax and the 6% penalty on that amount. It’s too late to do anything about the other $568.12, but at least it’s not taxable as a distribution, since you used it for medical expenses.
The increase in the tax payment makes sense (and there’s nothing you can do about it, unfortunately, unless something has been entered inaccurately), as the lack of a high-deductible health plan for any given month means you cannot contribute to an HSA for that month (see this page). It appears there was (and possibly still is) some confusion about the implications of a pension plan, but as BillM223 said (along with his other relevant points and questions), there is no connection between that and the HSA, unless you’re possibly referring to some specifics in the rules of the company for which you work.
If there are no such considerations, I don’t see anything (in what you wrote) stopping you from resuming your high-deductible health plan (unless you’ve started Medicare, as Bill said) and having an HSA going forward. (Even if you adopt this plan, you’ll still want to withdraw the current $631, since it’s for 2022.) If you end up doing this, you can possibly still contribute the maximum allowable amount for 2023 ($3,850 / $7,750 — if you keep the plan through the rest of this year and next year too). We’ll be here to help as more questions come up!
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