Deductions & credits

If you were a resident of another state (say Michigan) and then became CA Resident, you should have a separate W2 for the

      1. Michigan (the other state) and

       2. W-2 for CA,

Each state should have treated the HSA according to their State Laws. So, only the HSA amount when earned Michigan Wages should be on Michigan W2. Only the HSA amount when earned CA Wages should be on CA W-2. I see payroll companies get this wrong all the time.

So, the CA W-2 should only have HSA Contributions add back while you had CA Wages.

So, W2 for CA is ONLY CA Wages and ONLY deductions while in CA.

If your Payroll Dept messed up the W2 and included HSA contributions for whole year, that is a different story.

See below for some other comments I think a lot of us are missing!

EMPLOYER CONTRIBUTIONS = ONES ACTUALLY PAID BY EMPLOYER

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Also, almost ALL Payroll company W2's are coming out incorrect for CA Taxable wages.

Why? Because the Employer actual Contribution to the HSA (not the Employees contributions to HSA) is NOT included in Federal Wages (Taxable or Non Taxable) ON THE PAYCHECK STUBS .

So the HSA Contribution from EMPLOYEE (ONLY, Missing Employer payments to HSA for Employee) is added back to CA Taxable Wages and is MISSING the Employer actual contributions to the HSA that they paid on behalf of the Employee.  Therefore, the CA Taxable Wages is still incorrect on W-2!

You will find this out when you see the HSA Contributions in Box 12 Coded W is greater than the Difference between the US Taxable and CA Taxable Wages. See Example below.

For example: (I'm using actual Client Data for these examples below from 2020 Returns)

----------------------------------------------------------------------------------------------------------------------------------------

Employee Contributions to HSA for 2020                                               $4000

Employer Contribution to HSA on behalf of Employee for 2020       $  500

                                                                                                                  ---------------

TOTAL HSA Contributions in Box 12 Coded W                                    $4,500  This is correct!

Federal Taxable Wages                        $70,000

CA          Taxable Wages                        $74,000

                                                             -----------------

Difference is the                                       $4,000   Employee Contributions above ONLY

                                                                                     Oops this is missing the EMPLOYER $500 above; see below

Missing is the:

Employer Contribution to HSA                  $500

                                                              ------------------

                                TOTAL                                                                      $4,500 Matches above

Why does this happen? Well ,when I spoke with an ADP Payroll Rep for the Company's payroll, they stated that since the Employer payment of $500 is under a Cafeteria Plan, the amount DOES NOT GET TAXED FOR CA and they do NOT have to include this amount in CA Taxable Wages. SO THERE!

This is incorrect. So, if you pickup the CA Wages amount ONLY and do not include the additional $500 of wages for CA Taxable Income (see above), the CA Return is still incorrect.

Stay Well and Healthy; 

P.S. I was able to partially get one Company to correct this last year, but only partially...