@hotpxl
The situation is correct. Because the money was actually returned to you in 2021, it will be on the 2021 1099-SA with distribution code 2. (If you also have distributions for medical expenses, the total will be in box 1 and box 3 will have both distribution codes 1 and 2.) However, even though it was paid in 2021 and will be reported on a 2021 1099-SA, it’s still listed as other income for 2020. All this will get taken care of on your 2021 form 8889 and the IRS will eventually match everything up.
However, I should have noted at the beginning that the withdrawal of excess contributions is only reported as current year income on line 8 as “other income“ if it was employer contributions— meaning contributions made through payroll deductions and representing either your own money or an employer match. The reason the money is taxable in 2020 is that if you had not made the excess contributions, it would have been included as taxable income on your W-2.
If your excess contributions consisted of money that you contributed out-of-pocket, it should not have been added as other income. You would simply tell TurboTax that you contributed a reduced amount.
