Hi @dmertz thank you for your response.
The problem is the 1099 I received has code 2 instead of code 1.
Are you saying it is Ok enter code 1 while filing tax return (regardless of the code specified in 1099)?
No explanation to the IRS is needed. After entering the code 1 2022 Form 1099-SA the you received and indicating that the amount applied to medical expenses was the gross amount minus the amount of the excess (possibly $0 applied to medical expenses), TurboTax will include the amount on 2022 Form 8889 line 16 (possibly subject to penalty on line 17) and on 2022 Form 5929 line 44, eliminating the excess. None of this prevents e-filing.
