There is no issue with TurboTax, which is correctly applying the tax law in this case.
Your spouse made an excess HSA contribution - or, at least, made entries that indicated to TurboTax that she did. Once TurboTax saw that excess contributions were made, then it offered the taxpayer the option of withdrawing the excess contribution. In this case no excess would be carried over to the following year and no 6% excise tax would be applied.
However, it sometime happens that the taxpayer has spent all the money out of the HSA before they find out about the excess contribution, so they cannot withdraw the excess. Most taxpayers would simply allow the excess to be carried over to the next year, where the excess would be applied as a personal contribution and used up.
It does happen, as in your case, that the taxpayer has gone on Medicare, and therefore will never be able to be covered by an HDHP policy without a conflict, thus cannot use up the excess carried over to a subsequent year.
This creates a catch-22 situation wherein certain taxpayers carryover excess HSA contributions, being charged 6% a year, but there is no method provided wherein the taxpayer can terminate this excess.
We do not have an answer for this catch-22 situation yet.
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