I overcontributed to my HSA in 2019 by $73 due to ending the job that had the HSA and forgot to request repayment at the time. Since then I've paid $4 each year in overcontribution. In order to formally request a repayment of overcontribution from the HSA I have to hand-fill a request form, get my signature notarized, and send a $25 check to them for processing. However, if I claim on form 8889 that $73 of my HSA distributions this year were not qualified medical expenses, form 5329 zeroes out (the 73 goes in line 44, and then is zeroed out in line 46). The 20% penalty additional taxable income results in $28 more tax, which is better for me than the fee to the HSA notarization fees, plus gets the $4/year off my back. Is there any problem with me declining to claim the entire HSA distribution as QME? It was all QME, I just want to choose to pay tax penalty on $73 of it rather than jumping through my HSA's hoops.
No, your plan is perfectly reasonable and legal. That will put an end to the persistent carryover of the excess.