@ktramo17
You have to look at the instructions and form 8889 and 5329 (part VII).
To remove an excess contribution after the normal deadline so it is no longer taxed, look at the calculation on lines 43-47 of form 5329. The specifically references that withdrawals from the HSA that are reported on line 16 of form 8889 are removed from the excess contribution carry over.
Then line 16 of form 8889 is taxable distributions because they are more than your qualified medical expenses. And of course, taxable distributions are added to schedule 1 line 8f with a 20% penalty on schedule 2.
A withdrawal of excess from 2022, that is made is 2025, can't be coded as a "withdrawal of excess" under code 3, because the procedure for withdrawal of excess only applies if the withdrawal is made before the tax deadline (including extensions) for the year in which the excess contribution was made. That would be April 15, 2023 or maybe October 15, 2023, but by 2025 it is much too late to use that procedure. You can only make a regular withdrawal. And the way to use that regular withdrawal to clear the penalty is to not use it for medical expenses, so it is reported on line 16 of form 8889, which flows to line 44 of form 5329.
