In my opinion, the reason that this is a bug/defect in the TTax software is because Turbo tax should have recognized that the 1099-SA that I received had an amount on Box 2 (earnings on excess contributions) and also had the carryover excess contribution from the carry over worksheet. A human would have recognized that an earning on excess contributions would have been reported only on a contribution that has been sitting in the HSA account and was not withdrawn on time. Furthermore, a human would have recognized that there was an excess contribution from prior year by looking over at the carryover worksheet. Therefore, as part of the step-by-step process TTax should have asked additional question related to the information reported in the 1099-SA and adjust accordingly for the amount that should have been reported as an unqualified distribution that needed to be taxed.
