Line 16 of Form 8889 is in Part II, the HSA Distributions section, so an amount on line 16 of Form 8889 can only come from the entry of a Form 1099-SA that reports a distribution made taxable by not applying it to medical expenses.
Excess HSA contributions are not permitted to be excluded from income. If the excess contribution was a personal contribution (not through an employer), you don't get to deduct the contribution. It the excess contribution was through your employer, the employer would have excluded the amount from box 1 of your W-2, so the amount needs to be added back to income. Because the excess amount was not deducted or excluded from income, the excess in the HSA came from after-tax money. If the excess is corrected with a distribution after the due date, including extensions, of the corresponding tax return, that distribution must be treated as taxable, subjecting this after-tax money to a second taxation. If you received no HSA distributions in 2021, it seems that you filed in incorrect 2021 tax return that you should amend.
If you are eligible to contribute to an HSA for 2023 and you did not already max out your 2023 HSA contribution, you can apply some or all of the $500 as part of your 2023 contribution. Otherwise, if you are eligible to contribute to an HSA for 2024, you can apply the $500 to part of your 2024 contribution.
