My first question is, "Did your employer know that you had an HSA and funded it either through their contributions or your contributions through payroll deductions?"
If not, your task may be easier.
#1
If you did not take any money from the HSA for qualified medical expenses, then you can treat the account as a regular savings account. Make sure not to take any deduction for your direct contributions to the HSA on line 25 on the 1040.
However, the IRS may have received copies of a 5498-SA and a 1099-SA (for the final distribution). If so, you will have to keep good records to explain if the IRS writes you a letter asking about why they have these forms and you didn't enter them on your return.
#2
If you indeed took distributions from the "HSA" for medical expenses or if you funded the HSA through your employer, then you need to do a number of things:
1. Contact your HSA administrator
and tell them what happened. Ask for the return of all contributions as
"Mistaken Contributions". Do not use the word
"distribution" as that means something else - you want the return of
the contributions made by mistake. Be nice, as they do not have to do this. If
accepted, the HSA administrator will send you a check for the amount.
2. If you spent any money out of the HSA, then contact the HSA administrator
(yes, again), and tell them that you had a "Mistaken Distribution",
that is, you spent money out of the HSA for non-qualified medical expenses.
Actually, they probably were qualified medical expenses, but you shouldn't have
had the money in the account in the first place. Again, be nice. In this case,
you will be asked to complete a form and send it and a check for the amount of
the mistaken distribution.
3. In TurboTax, when you enter your
W-2, the amount in box 12 with a code of W is the sum of your employer HSA
contributions and your contributions by means of payroll deduction (together
called the "employer contribution"). This amount is now all excess
contributions, and TurboTax will tell you that. When TurboTax tells you about
the excess, it will ask if you will withdraw the excess before the due date of
return. Of course you will, because you are doing step #1. When you answer
"yes" to withdrawing the entire amount, TurboTax will add the amount
that came out of the W-2 box 12 with code W to line 21 (Other Income) on page 1
of the 1040.
Note that if you made direct
contributions to the HSA (not through payroll deduction), this amount will not
be added back to line 21; instead, it is instead not added to line 25.
4. If the HSA administrator agrees
to process the Mistaken Distribution (step #2), then you will either get a
corrected 1099-SA (or not), but in any case, you do not want to enter the
1099-SA into TurboTax, because you shouldn't have taken this distribution
anyway.
Note that because of this mix-up,
that the IRS may get conflicting information. In this case, they may write you
a letter asking you to clarify what happened. Keep good records so you can
answer.
From your point of view, the
important thing is that you take no deduction for the HSA contribution
("employer contributions" should be added to line 21 (Other Income), and any direct HSA contributions (not through payroll deductions) should be removed from line 25
(the HSA deduction in the adjustments to income section on page one of the
1040)).
