So long as your excess contribution is in your HSA, it is continuing to generate earnings tax free, until you remove it. Since these earnings are not being taxed until you withdraw it, you are hit with a 6% penalty each year that you let that excess stay in your HSA.
The tax you paid on the excess contribution on the 2015 return was just you paying income tax on the excess itself. Why? Because it is very likely that the excess contribution was a contribution through your employer, and therefore on your W-2 in box 12 with a code of W. This amount (the code W amount) is removed from Wages in boxes 1, 3, and 5 when the W-2 is printed. Since, of course, you should not get a "deduction" for the $1,800 because it was in excess, this amount was added back to your income as Other Income so you paid income tax on the $1,800 after all.
However, all that time the $1,800 has been in your HSA, it is continuing to generate earnings that are tax-free, even though this should not be happening.
If you had returned the excess contribution prior to April 15, 2016 (or whatever the due date of your return was), then for tax year 2016, you would have received a 1099-SA describing the amounts of the earnings to add to Other Income in 2016. If you had done that, that would have been the end of the problem. There would never have been a 6% penalty because the 6% penalty is only on excess contributions carried over to the next year, not on excess contributions that are returned in a timely manner.
However, once the deadline to return the excess contributions has passed, it is too late to return them.
You have two choices:
1, Apply the excess contributions to next year's limit, or
2. Make a distribution from the HSA for non-qualified medical expenses
#1. In 2016 (the first year to which you carried over the $1,800 excess), you should have reduced your HSA contributions by $1,800. Then, the $1,800 would have been used up by the 2016 annual HSA contribution limit, and there would have been no more excess to carry over and be penalized on.
This works great so long as you retain HDHP coverage making you eligible to make this "contribution". Note that you can do this for this year and cut off the excess even now.
#2. If you can't do #1 (if, for example, you no longer have HDHP coverage), then your only other choice is to make a distribution of $1,800 for non-qualified medical expenses. In this case, the $1,800 will be added to your income and a 20% penalty assessed. Yes, this is expensive, but it may be cheaper at some point than continuing to pay the 6% a year. Note that in this case, the 1099-SA reporting your earnings on the excess is not sent to you so you are not paying income tax on the tax-free earnings. This is one reason the 20% penalty is so hefty.
You asked why the system is this way? It is to discourage you from making excess contributions tax-free and from making earnings on that excess tax-free year after year.
