@kelly-marriott , there are several possibilities. If you are eligible to treat the $267 as part of a contribution for 2025, you can simply do that and you'll have no excess for 2025 and no excess that continues to carry forward. If you can't do that for 2025, you'll owe the $16 penalty for 2025. Similarly, if you are HSA eligible in 2026, you could treat the excess carried forward from 2025 as part of your 2026 HSA contribution.
Absent the ability to apply it as part of a contribution for a year in which you are eligible to do so, the excess would need to be resolved by obtaining an ordinary taxable (code 1) distribution from the HSA. An HSA distribution is made taxable by not applying it to medical expenses. If you paid medical expenses from your HSA in 2025, you could treat up to $267 of those distributions as not applied to medical expenses, making that portion taxable. If distributions from the HSA in 2025 were less than $267, you'll need to obtain a taxable distribution of $267 in 2026. If you are under age 65 when the taxable distribution is made, the distribution is also subject to a 20% (in this case, $53) early-distribution penalty.
