@Marlee1 wrote:
@BillM223
Thanks. This makes sense but my 1099-sa has a distribution code of 2 in box 3 which says its an excess distribution. Because of this I believe TurboTax never asks me if it was for qualified or non-qualified. Should I change box 3 to normal distribution? Can I do that without getting flagged?
Something is wrong here.
@dmertz
Let's clarify the history.
1. Why did you have excess contributions in 2022? (Because your HDHP ended in July.)
2. Were you eligible in 2023? (You said no.)
3. Did you in fact make contributions in 2023? (Probably not, but confirm.)
4. Did you withdraw any money in 2024 for medical expenses, or only the $149 to correct the excess?
Here's the problem: The procedure to "remove excess" contributions for 2022 can only be made up through October 15, 2023. Since the withdrawal occurred in 2024, it was not a removal of excess, it could only be a regular withdrawal. If you asked for removal of excess, the HSA bank should have told you no, and they should have known better than to use that code, even if you didn't know better.
I think you need to contact them and ask for a corrected form 1099-SA showing a regular withdrawal, then you can pay the tax and penalty and the excess will be cleared from the account.
I don't know what would happen if you changed the code on your return without getting a corrected 1099. Turbotax would calculate the correct tax and penalty, but would anything happen at the IRS because of the mis-match?
