I found my client had "None qualified" HSA contribution, they do not have HDHP plan, but they made HSA contribution on their own (not through W2 employer) for 2018 and 2020 .

They withdrew all above as 3/31/2021 ,received 1099 SA total of $7595  in 2022

Now on 2021 return : $7595 distribution from 1099 SA:

Assumed  about one half of $7595 was from from 2018 ($6900/2=3450) contribution not deducted ( they only deducted half on 2018 return)

Remaining half of $7595 is from 2020 contribution which was not deducted on 2020 tax no 8889 filed

So by doing so, there  will be no  taxable income reported on Sch 1 line 8e, no 20% penalty on form 8889, no form #5329 needed.

But need amend 2018 return to not deduct $3450 as qualified HSA, pay back tax.

Amend 2019 to report earlier distribution of 2018 contribution $3802 ($3450 plus interest) which was missed.

Anyone agree with me??

Below is the detail of the history

Date                     Contribution Amount          Deduct on tax return        Withdrew 1099 SA

12/28/18                    $6900                                   $3450                       $0.00

4/1/2019                    $ 0.00                                    $0.00                        $3802

5/20/20                     $3550                                    $0.00                          $0.00

3/30/21                     $0.00                                     $0.00                         $7595.00

Thanks!