What should have happened (sorry but I am having trouble following the sequence of events) is this:
When you amended your 2022 return, the entire $3,650 was added to your Other Income and you were assessed a 6% penalty on the carry over to 2023.
In TurboTax, the carryover from the previous year is included in line 2 (form 8889) as a "personal contribution" of the current year. So the carryover of $3,650 was put in line 2 of the 8889 for 2023. NOTE: up until recently, the carryover was added invisibly to line 2, that is, it did not print but the rest of the arithmetic assumed it was there.
I think that you withdrew the excess $3,850 contributions for 2023, because you had a total of $7,500 in excess, and $3,850 were for the current year, so the $3,850 could be withdrawn as excess contributions for 2023. Then the $3,650 was taxed 6% again and rolled over to 2024.
Again, in 2024, the rollover ($3,650) is placed (at least in our imagination) on line 2 of the 8889. You contributed $4,150, for a total of $7,800 in contributions, and the excess contributions reported as $3,650, right?
As dmertz noted when you took a distribution of $4,150 in 2024, you told the HSA custodian it was an excess contribution (so the 1099-SA code was 2 in box 3), but to TurboTax it was not a withdrawal of excess since none of the $4,150 contributed in 2024 was in excess, and you cannot withdraw the excess from a prior year return this way.
So, what to do...
Stop contributing to your HSA ;-).
No, seriously, don't add another $3,650 this year. Are you going to be under HDHP coverage for all of 2025?
If so, let's try this:
1. Contact your HSA custodian and report that the withdrawal of $4,150 in 2024 was a Mistaken Distribution. You will have to complete a form and send them a check for $4,150. Grovel if you need to because they don't have to accept this request. If they accept this, that cures your 1099-SA problem. (you can just ignore the 1099-SA that you got)
2. Contribute only $650 this year. Remember that you have a carryover of $3,650 to line 2, and if you don't contribute any more than $650 (this is both you and your employer combined), then your total contributions will be $4,300, which is exactly the limit for 2025.
3. You will be dinged another 6% for the carryover of 2024 to 2025, but that really can't be avoided, unless you want to start changing forms, which is, as dmertz pointed out, how you come to the attention of the IRS.
4. When the carryover of $3,650 is used up in tax year 2025, the carryover is gone - you will not see it any more.
5. Starting in 2026 (tax year, that is, in early 2027), you can start fresh, contributing the max again.
Does that work for you?
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