IRS Notice 2004-50 Q&A 34 says to compute the adjusted distribution using CFR 1.408-11. This implies that the adjustment is to be made for both gains and losses. Only gains are taxable. In your case the return of the excess contribution for 2022 of $3,600 will mean a distribution of $3,524.50, with the Form 1099-SA having $3,524.50 in box 1, $0 in box 2 and distribution code 2 in box 3. The Form 1099-SA for the return of the 2023 contribution will have $1,925.60 in box 1, $125.60 in box 2 and code 2 in box 3.
All contributions are your contributions in that they go against your contribution limit, even those made by your employer.
