One issue is that yes, indeed, according to the IRS rules, there are situations in which you will have to pay income tax on an excess contribution twice.
"I really just don't want the $2829 to carry over to next year on form 5329 and I want the forms to show we withdrew the excess. "
Unfortunately, that's the way the system works, because you did not withdraw the excess in a timely fashion.
Let's see: are you still under HDHP coverage?
I asked about current HDHP coverage because there are only two ways to get rid of an excess contribution carryover (that thing on the 5329): (1) withdraw the money and pay tax on it (again), or (2) reduce your normal HSA contributions in a future year when you have HDHP coverage. In the latter case, the carryover will be applied to your current year HSA contributions (line 2, 8889). If the carryover can be applied with a new excess, then the old carryover excess will be applied to the new year, and the recurring penalty will disappear.
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