I found a mistake in the instructions for HSAs. TT assumes all payroll deductions are on a W2, but that is not always true. How do you get them to fix their software?

[jdrees]

Turbo Tax does not seem to understand that only employer contributions and employee contributions made through a cafeteria plan show up on box 12 of the W-2.  The software (and the agent I talked to) both assume taxable employee contributions made through payroll will show up in box 12, but according to the current w-2 instructions on irs.gov, they should not.  Somebody should fix the software to match what the IRS form 8889 instructions say, so that other people's taxes don't get miscalculated.  The work-around is to put employee payroll contributions no on the W-2 on the line that specifically says "not through your employer", but this will fill the form 8889 out correctly according to the IRS.  It's crazy how hard it is to get TurboTax to fix a mistake.

[BillM223]

Please show us the exact instructions on which form that are not understood by TurboTax.

Generally, this is a case of the taxpayer not understanding the IRS' terminology.

So please do the following:

1. tell us what form and instructions you are referring to

2. quote the instructions here in the post

3. tell us why you think TurboTax doesn't understand the instructions.

[jdrees]

I had $6,000 in employer contributions, and $1,500 in employee payroll contributions this past year.  My paystub confirms this, as well as my HSA year end statement and 5498.

So you can see in the turbotax screen below, that turbotax says all contributions via payroll should show up in the first box (even the help on the first box shows the same thing).  And the second box below says not to include contributions made through your employer.

However, you actually have to enter Taxable HSA employee contributions made via payroll deductions into that second box (even though the turbotax instructions specifically say not to).   I included the instructions for line 2, form 8889 as well, showing you have to enter any employee contributions here (and the only way to get line 2, form 8889 to populate is to type it in that box in the step-by-step).

I called TurboTax and the lady tried to tell me my W-2 must be wrong since it didn't include my employee contributions in box 12 (and it only had my employer contributions), but I referred her to the irs website which specifically says that the only employee contributions that will show up in box 12 are ones made through a cafeteria plan.   If you make a taxable employee payroll deduction (and not through a cafeteria plan), it does not show up in box 12 (nor should it, according to the IRS).

So you have to not follow turbo tax instructions, but rather still enter employee payroll contributions in the second box in order to get form 8889 to fill out accurately.  

The should fix the language of the second box to say:

Any contributions you personally made (including through payroll but that are not included in box 12).  

Or they could change the question to ask what line 2 of the form 5498-SA has and subtract anything in box 12 to figure out the employee contribution.

Currently the question is inaccurate and causing a miscalculation if answered correctly and you don't get your full deduction.  I thought they guaranteed accurate on deductions, but there does not seem to be any way to register a complaint for inaccurate deduction calculations.

Form 8889, IRS instructions for Line 2 (which that second box in the step-by-step populates)

[BillM223]

"The software (and the agent I talked to) both assume taxable employee contributions made through payroll will show up in box 12, but according to the current w-2 instructions on irs.gov, they should not."

This is 100% not true. The IRS instructions for the use of code W in box 12 on the W-2 state:

Code W—Employer contributions to a health savings account (HSA). Show any employer contributions (including amounts the employee elected to contribute using a section 125 (cafeteria) plan) to an HSA

 Isn't this exactly what the software is doing?

And if you are referring to the 8889 instructions for line 2, they state:

"Line 2 Include on line 2 only those amounts you, or others on your behalf, contributed to your HSA for 2023...Do not include employer contributions (see line 9) "

But employer contributions refers in IRS-speak to the code W amount on your W-2 which is supposed to include your payroll deductions for your HSA. Therefore, simple logic tells you that the payroll deductions belong on Line 9 and NOT on Line 2 of the 8889.

The problem is that the IRS speaks English the same way that lawyers speak English - and for the same reason. The average English speaker doesn't understand the technical meanings of the terms used, so thinks that TurboTax doesn't know what it is talking about.

Yes, the usage of HSA terminology by the IRS is confusing, but that doesn't meaning that TurboTax is wrong.

[jdrees]

So you are missing the point that there are two types of HSA employee contributions you can make through payroll.  One of which is through a cafeteria plan, and those HSA employee contributions will show up on Box 12, code W, as you rightly stated.  But as I stated, I am specifically referring to taxable HSA employee contributions made via payroll.  These do not show up in Box 12 where the employee cafeteria and employer contributions show up. 

This is the real issue and why Turbo Tax is wrong in it's question.  They (and likewise your response, which assumed it impossible for TurboTax to be incorrect) assume the only type of HSA employee contribution is through a cafeteria plan, but it is not, and they do not show up in Box 12.  I confirmed I was understanding the information correctly from the IRS website (I'll paste the w2 instructions on HSAs below, so you can see).  I confirmed with quickbooks (another intuit product) and they said it was correct that HSA employee contributions do not show up on a W2 box 12 if they are not through a cafeteria plan.  I confirmed with a CPA, who said I will know need to file 3 amended returns because I was assuming TurboTax was calculating everything correctly and never double-checked until this year, which the CPA confirmed TurboTax is asking the question incorrectly, causing the form to not put HSA employee contributions via payroll (not through a cafeteria plan) onto line 2.

I wonder how many other people got caught by this and TurboTax did not get them their full deduction because they have the wrong question.  They really need to fix it ASAP.

Again, the second box should read: Any contributions you personally made (including through your employer, but that do not show in Box 12 of your W-2).

Or again, potentially a better option would be to have the user enter Box 2 from their 5498-SA to make sure the appropriate amount gets put into line 2 of the form 8889.

Thanks for your attention to seeing that the software gets corrected to accurately reflect the two types of employee contributions and that they do not all show up in Box 12 of the W-2.