The usual sequence is this:
1. During a tax year (say, 2023), you made excess contributions to your HSA.
2. While you are doing your 2023 tax return in early 2024, TurboTax tells you about the excess.
3. If the excess was from "employer" contributions (i.e., the code W amount). then the excess is immediately and automatically added back to your Other Income (line 8f, Sch 1 (1040)). (Please don't do this yourself).
4. If the excess is from personal or direct contributions, then the amount of line 13 of Schedule 1 (1040) is automatically reduced by the amount of the excess. (Please don't do this yourself).
5. You call the HSA custodian before April 15th or visit their website and ask for the "withdrawal of excess contributions" - you must use this phrase or the custodian's paperwork will be wrong.
6. The custodian should calculate how much the excess amount made in earnings while it was in the HSA. Note that this period spans from when you made contributions in 2023 to when you asked for the excess to be withdrawn. This period necessarily covers parts of two calendar years (2023 and 2024).
7. The HSA custodian should send you a check for the excess and the earnings.
8. The HSA custodian should send you a 1099-SA, documenting the excess and the earnings. This 1099-SA will have a distribution code of '2', to differentiate it from the 1099-SA for medical expenses (distribution code of '1').
9. Since some of the earnings are normally from 2024, the IRS has you file this 1099-SA as part of your 2024 return -- done in early 2025. Yes, this means that earnings from 2023 tax year are not taxed until your 2024 tax year.
OK, can you make this sync with your return and all that is going on?
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