OK, I did not realize that you had wandered off into the last-month rule processing, so ignore what I said before.
What that section is doing is this:
1. The last-month rule states that you are allowed to use the full annual HSA contribution limit no matter how few months you had HDHP coverage, so long as you had HDHP coverage the first day of December.
2. The catch is that you have to stay under HDHP coverage for the next year, or else your previous year return get recalculated. This is called "Failure to Maintain HDHP Coverage".
3. The recalculation consists of figuring out what your annual HSA contribution limit would have been had you not used the last-month rule.
4. So TurboTax wants to know how many months you had what kind of HDHP coverage, and what kind of HSA contributions you made (all in 2022), so it can recalculate the excess, if any.
5. I say, "if any", because it's possible that you did not contribute too much even without the last-month rule. In this case, there is no extra tax.
6. But if you contributed too much without the last month rule, then look at Part III on form 8889, this is where the penalty is put.
Line 18 is the excess that you would have had had you not used the last-month rule. This money was excluded from income in 2022, so it's not double-taxing it to put it here.
Line 21 multiplies the amount in 18 and 19 (we are ignoring line 19 here) by 10% - this is the penalty for failure to maintain HDHP coverage. But, again, no double taxation.
And please don't watch the Refund Meter too closely; things are happening out of sync with what you are entering. Let's get to the end and see if anything has really been double taxed.
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