I discovered that in 2016 there some excess contribution in my HSA ($162.50). I have already maxed out my contribution for 2017. Which means I can't roll over the excess contribution into 2017 correct? What are my options at this point?
You can eliminate the excess if you will do the following:
At some point in the HSA interview, you will see a screen entitled "Did you overfund your HSA in 2016?" Answer "Yes".
Enter the amount of the excess from 2016 ($162.50) and hit Continue.
The next screen will be entitled "You may want to withdraw money from your HSAs". This screen is asking if you agree to contact your HSA administrator to withdraw the amount list on this screen before the due date of your tax return. This assumes that the 2017 HSA contributions were larger than the 2016 excess (as they surely were) and that they were employer contributions or your contributions by means of payroll deduction.
When you check "OK, we'll withdraw the full $XXX excess contribution by April 17, 2018", then TurboTax will add this amount back to line 21 (Other Income) on page 1 of the 1040. From a tax point of view, the excess is now gone.
Then you MUST contact the HSA administrator before April 17th and ask the administrator to "withdraw an excess contribution for 2017". Do not say "distribution" because that will confuse the HSA people. They will send you a check for the excess which you will deposit in your checking account, and you're done.
Alternatively, you could refuse to withdraw the money and roll the excess into another year, for which you will be penalized another 6%. But the first way described above discharges the excess and avoids additional penalties.