@MrHarriet
The HSA Bank cannot legally process an excess contribution withdrawal for 2021 contributions after October 15, 2022. If they process an excess withdrawal for you, then they are either breaking the law, or they are making a regular withdrawal not for medical purposes, which will subject the withdrawal amount to income tax plus a 20% penalty.
Whether or not you owe anything to the employer for the $25 per week that they were contributing to your account is a matter between you and your employer. The IRS doesn’t care, and the HSA Bank has no business giving you advice in that area. From the IRS point of view, the ineligible contribution is added back to your taxable income, as if it was a $25 per check raise or bonus that was included in your taxable income all along. The HSA bank will not be returning the funds to your employer, they can’t. They can only return funds to you, because the account is owned by you and all funds in the account belong to you after they are contributed.
There might have been an implicit understanding with your employer that you were eligible for the HSA, and they would only make contributions if you were eligible. There might also have been an explicit contractual arrangement with your employer. On the other hand, you are not the first person to enter an agreement in good faith without realizing that their spouse had insurance arrangements that conflicted with the HSA requirements. I don’t feel there is any need to bring this up with your employer or offer to pay them back the $25, but that is up to you. There is no legal requirement in state or federal law that would require you to bring this to their attention. Any requirement to correct this with the employer would be a matter between you and the employer only.
