1. The employer will issue a corrected W-2 ONLY if the employer will retrieve the $2,500 from the HSA custodian. The employer if allowed to do this if they should have known that you were not eligible to contribute to an HSA. However, your employer may choose not to do this (employers show a surprising reluctance to do this), in which case you will have to go through the HSA interview in TurboTax.
2. If not corrected W-2, enter the HSA interview (Deductions & Credits->Medical->1099-SA, MSA, HSA). Report that you had no HDHP coverage. TurboTax will treat the entire code W amount as "excess" contributions. It will ask you if you are going to withdraw it (do so if you can).
3. No matter if you withdraw it or not, excess contributions made through your employer are added immediately to Other Income - you don't have to do this - in fact, please don't make any entries in Forms mode, let TurboTax do all the work.
4. Any excess that you can't withdraw (because maybe you don't have enough cash in the HSA) will be carried over to the next year and you will be hit with a 6% penalty.
5. Before April 15th, you will contact your HSA custodian to ask for a "withdrawal of excess contributions". Use this exact phrase. Often, the custodian will have an online form for this.
6. You will be sent in time for the 2025 tax return a 1099-SA for this withdrawal with a distrbution code of "2" and earnings in box 2 which will be added to your 2025 return. The amount of the excess in box 1 will be ignored because TurboTax already added the excess to Other Income in 2024.
7. As for the issue in the Review, it is OK to enter either Self or Family just to get around this screen. Since you told TurboTax earlier that you had no HDHP coverage, the numbers on the 8889 will be correct.
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