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Deductions & credits
"the return is good the the way it is" - I hope I made it clear that your 8889 was OK...I did not offer an opinion on the rest of the return (nor could I).
"yes I always enter total medical expense in the worksheet and then let TT net our the HSA disbursement." - good Most taxpayers are unaware that that is how TurboTax works.
"For next year, should I expect to receive two 1099-SAs - one for the normal distribution and one for the excess contribution? " - yes. One 1099-SA with a distribution code of "1" for your regular expenses (presumably through your debit card), and the other with a distribution code of "2" for the excess contributions. Actually, the only impact to you will be the earnings, if any, that you (well, TurboTax) will add to Other Income.
"how does the IRS know how much I contribute directly into the HSA?" - first, because you told the IRS on line 13 of Schedule 1 (1040) :-). But the other way is that your HSA custodian keeps records also. At a minimum, during your audit, the IRS agent would collate your tax returns and the records of the HSA custodian, and they would really need to match. I also don't know what reports your HSA custodian sends monthly or annually to the IRS, but there may also be an opportunity there for the IRA to keep tabs on you.
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