If after entering your W2 which has 7200 (the maximum allowed) deducted already, you then, in the HSA interview, enter another amount as a contribution you made, then you have exceeded the maximum and are penalized which is why your refund goes down. Incorrect. Doing TT in order you enter your W2 first. Income and then taxes withheld. Refund/Owe populates. Then 12cW enter $7200 refund goes down or Owe increases. Haven't reached the HSA section yet. My employer did not make the contribution, I did. Same way my employer did not make my 401k contribution.
Any amount entered via your W2 box 12 is treated as employer contributions even if it is withheld from your pay. The bottom line is it is not taxable income and is subtracted from your box 1 amount already. Incorrect as mentioned above it isn't until you do the HSA section that your refund goes back up or your owe amount decreases.
My point was the tax code is complicated and inconsistent. My 401k contributions are also deducted from Box1 already and when I enter that in box 12 it doesn't affect my refund/owe but the HSA does. It's possible as well that some using TT and have an HSA for the first time will overlook the section where you need to complete additional HSA information to get the refund/owe back to correct. I missed it this year but knew I needed to do it so went and found it.
