"When I went to add my personal contribution of $1000, my taxes due went UP $40, but once I marked the months that I had a high deductible health insurance, plan, it went back down."
Yes, this is how it works, if you are making "employer contribution" (i.e., code W in box 12 on your W-2. The reason is that the IRS does not consider HSA contributions to be deductible until you have shown that you have the proper HDHP coverage, so the code W amount is added to Other Income on line 8 on Schedule 1 (1040).
Why? Because before your W-2 was printed, your employer removed the code W amount from Wages in boxes 1, 3, and 5 - this is how such contributions are a tax benefit, because you are never taxed on them at all.
However, sharonlu, you said that you made a personal contribution, and your tax went up. In this case, on the immediate screen where you entered the personal contribution, your tax due went up because it was considered an excess contribution that was to be carried over to the next year, so the "excess" is taxed at 6%. This is how much your tax went up.
However, as soon as you entered your HDHP information, your tax went back down, because the 6% tax penalty was removed.
This is why we encourage taxpayers NOT to watch the Refund Meter too closely, because there are things that are happening behind the scenes that affect the Meter out of sync of what you are entering. This is likely what happened to Va18.
As I noted above, TurboTax is handling the HSA contributions correctly, if you would just go all the way through the HSA interview.
@sharonlu
@Va18
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