BillM223
Expert Alumni

Deductions & credits

If you would enter BOTH items that I told you to do (the income item and the deduction item), then the employer HSA contribution would not be taxable; you are being confused because you entered the deduction without entering the income, artificially lowering your tax.

 

In fact, if you didn't enter either one, you would be no worse off...except that your 8889 would be incorrect. But, I would rather than you do that than just enter the deduction, because you can't enter deductions for items that were never declared as income.

 

"And to report that I made the contribution just doesn't sit well with me because it is untrue." You misunderstand how the HSA works. On line 2 of the form 8889, the instructions say, "Line 2 Include on line 2 only those amounts you, or others on your behalf, contributed to your HSA for 2023." You must report ALL contributions to your HSA, no matter who made the contributions. Please don't get hung up on this idea that if you didn't make the contribution, you don't have to report it.

 

Furthermore, you misunderstand the IRS instructions about code W. This refers to ANY contributions made by or through your employer, whether the employer made the contribution or you did by means of payroll deduction.

 

The IRS speaks English the same way that lawyers speak English (and for the same reason), the actual meaning is not obvious to the average English speaker. And TurboTax is stuck using the IRS' terminology.

 

"It stinks that I'm being taxed for using the HSA $ for qualified expenses," - this is simply not true. It's because you don't understand how the HSA works. I am sorry to be so blunt, but the TurboTax people that you spoke to were answering a different question than what you thought you asked. And the $220 that you keep referring to is an artificially low tax number caused by double-dipping (you taking an HSA deduction without declaring the contributions as income).

 

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