You must correct the excess by taking a regular HSA distribution (not a return of contribution) of an amount equal the the excess and treating it as taxable (not used for medical expenses). If you are under age 65, the taxable distribution will also be subject to a 20% additional tax.
If you used your HSA for medical expenses in 2023, you can eliminate some or all of the penalty for 2023 by treating those payments as taxable (not used for medical expenses) even though they were used for medical expenses. This will also reduce the amount of excess that remains to be corrected in 2024.
