There is no problem with the TurboTax software here.
What is happening is this:
- The IRS does not consider HSA contributions to be nontaxable until the taxpayer demonstrates that he/she has the proper HDHP coverage on form 8889.
- But the W-2 Instructions call for HSA contributions made through the employer to be removed from Wages in boxes 1, 3, and 5 on the W-2 before it is printed.
- Thus, when the W-2 is entered into TurboTax, the code W amount that had been removed from Wages has to be added back temporarily, until the taxpayer can show HDHP coverage in the HSA interview.
- Therefore, the code W amount will appear on line 8 (Other Income) of Schedule 1 (1040) after you enter the W-2, but will be removed from Other Income during the HSA when you show HDHP coverage.
This is a temporary situation that is caused by the way the IRS defines the W-2 and the HSA process. TurboTax is doing it correctly and has done so for years.
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