A year ago my daughter made a contribution to her HSA that was not allowed. Before the filing deadline (but not year end) she got it refunded and as far as I know it was reported with last years taxes via TT (line 8 1040 shows - I think - excess contribution being documented) This tax year however she received two tax documents - 1099SA. One for the distribution this year - coded as a normal distribution (seems ok) and another one coded as an excess contribution (does not seem ok - assuming it cannot be ignored since it was handled last year - understanding it would show up in this tax year?). Can you help me what should what should have happened and how I can confirm it did/did not happen?
This looks correct and both should be reported. The one coded as an excess distribution may have an amount in Box 2. This is the only amount your daughter will be taxed on if she took care of the excess contribution in 2020.
For example, if she contributed $4,000 last year and realized at tax time she could only contribute $3,100, she withdrew $900 and told her HSA it was for an excess contribution. The HSA calculated that she earned $8 of interest while that $900 was in her HSA and sent her $908. She now has to pay tax on that $8. The $900 is already accounted for.
The other 1099-SA is standard and seems ok, as you say. As long as this money was used for qualified medical expenses, it is not taxed.