Shanks2
"although you do not get a 1099-SA 2023 showing this excess contribution" - No, you don't get a 1099-SA for an excess contribution, you get it only for withdrawing the excess. 1099-SAs report on distributions from your HSA.
If you did not withdraw the excess, then you would not get any form at all - the only notice would be that the non-withdrawn excess would be carried over to line 2, form 8889 on your 2024 return as a "personal" contribution.
"Even if this were to be true, we would still be paying tax twice on the earnings amount since the total of the earnings and the excess amount were already included as Other Income in the 2023 return." No, you are paying tax on the earnings only once. TurboTax doesn't know what your earnings were for your 2023 return, so it could not have added them to 2023 income. TurboTax only added the earnings to your 2024 return, when you entered the 2024 1099-SA.
"if you withdraw the excess amount between Jan 1-Apr 15, 2024 (by the tax due date effectively) then it would be treated as though the excess was not contributed, thus avoiding penalty on the excess and the earnings. And this should be shown as Other Income, which is what we did in 2023 tax return." To clarify, what is actually happening is this:
On your 2023 return, as soon as TurboTax detected an excess contributions that were from "employer" contributions (i.e., from the code W amount in box 12 of your W-2), TurboTax added the excess employer contributions to Other Income. This means that the excess employer contributions will be assessed income tax, just like the rest of your income.
If you withdrew the entire excess in a timely manner, then there would be no penalty, but the penalty is only in the carryover (the amount not withdrawn). Since TurboTax does not know what the earnings are yet, there can't be any penalty on the earnings.
Repeat: "employer" does not refer to the source of the contributions (from you or from the employer), but to how the contributions were sent to the HSA.
@Shanks2
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