If you have an excess HSA contribution that you did not withdraw by the due date of the return, then, yes, there are two ways to deal with the excess.
One is to carry over the excess to the next year, pay a 6% penalty on the carryover, and then reduce your next year's HSA contributions so that you can fit the carryover and your regular contributions together in under the annual HSA contribution limit for that year.
Yes, this is a relatively painless way to deal with an excess that you did not withdraw in time.
The other way is, as you know, to take a distribution equal to the excess from your HSA and not use it for medical expenses. This amount is added to Other Income and additionally penalized 20%. But at least it's done. There are situations where this may be preferable, but if you are participation in the HDHP year in and year out, and can use up the excess/carryover in the next year, for most taxpayers, the first option is preferable.
Rocket, does that cover it for you?
@Rocket927
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