"I removed the money from HSA as an excess contribution in 2024 and the 1099-SA gave it a code of 2 (Distribution of excess contribution)."
@astiz , the problem is that that is not permitted under the tax code.
"They refuse to acknowledge that this is a bug in their software so they are giving me a cludge."
Who are "they?" If you mean TurboTax, TurboTax is correct in not allowing a code-2 Form 1099-R to eliminate an excess contribution made for an earlier year because the tax code does not permit doing so. The only permissible correction made by obtaining a distribution is to obtain an ordinary code-1 distribution and make it taxable by not applying it to medical expenses.
"What makes matters worst, is that the IRS forms 5329 and 8889 are broken or at minimum unfair because if one does not remove the excess contribution the year in which it happened the only way to remove it is to pay a 20% penalty plus pay taxes on it again, which is my case."
That is what the tax code requires. Changing that would require changes to the tax code.
