It's correct that the Form 5498-SA does not reflect the returned contribution. When TurboTax indicates that your spouse has an excess contribution, indicate the amount of excess contribution your spouse had returned (not the gain-/loss-adjusted amount distributed). TurboTax will treat the excess that was returned as an amount never contributed. If the contribution was made through an employer, the excess will be reported as Other Income since it was excluded from income on the W-2.
You'll report the code 2 Form 1099-SA on your 2023 tax return. The taxable amount will be any gain attributable to the excess contribution returned, shown in box 2.
