I had a chat with my payroll. According to her there were no anomalies in pay stubs or w-2. So basically, all contributions in 2016 were taken out of paycheck as expected. So it seems like, the whole thing is hanging on 5498-SA.
1. If 5498-SA really agrees with Box 12 code W in W-2 then refund from CYC is a total error.
2. If 5498-SA is short of $166.66 from whats in W2, then the situation is as CYC says i.e. a contribution was taken but not deposited into HSA.
In scenario #1, the whole $257 I should report as income.
In scenario #2, the interest part and apology money i.e. $86 is to be reported as income and the $166.66 is pre-tax money, I did not pay interest in 2016 for that. So, has to be reported as such or use it as tax deductible HSA money for medical expenses.
@dmertz
I think the person that you spoke to that indicated that the $166.66 could be treated as if it had been contributed to the HSA is completely wrong. Since it never actually made it to HSA account and was presumably not reflected on the Form 5498-SA (yet to be verified) and not included the code-W amount in box 12 of your W-2
So far it seems a little bit off from what you are thinking, i.e., $166.66 IS reflected in Box 12, code W but NOT in 5498-SA(yet to be verified).
