This is my interpretation as well. If I took all $3,600 out for 2022, then it seems the IRS would consider the difference of ~$75 as a normal distribution, above and beyond what should have been removed as excess, and subject it to the additional penalty
Your explanation for the 1099-SA is what I thought as well. From what I read, tax software wants to count Line 2 as Other Income, so it would be inconsistent to report the ~$126 as Other Income for 2023 but only have ~$51 shown as earnings. So I told the HSA custodian to use ~$126 for the earnings in Box 2, and the ~$3525 as the distribution for 2022
