This issue of when to use the code W for HSA contributions is not described, so far as I know, for 2% owners. The IRS notice I referred to above was issued more than a year after the initial HSAs took effect, because there were so many unanswered questions...and there have been more notices and there are still unaddressed questions.
For my part, I would prefer that you not put the code W amount on the W-2. This tax return is a federal income tax return, not a Social Security or Medicare tax return. So whatever we do has to be right for federal income tax.
If you enter anything with code W in box 12, then TurboTax is going to treat it as an "employer contribution" to your HSA on form 8889. So when you add the contribution also to the "personal" contribution line, you artificially inflate the reported contributions, which probably creates a false report of excess contributions.
Instead, you should remove the code W from box 12 on the W-2 and instead add an entry to box 14. Box 14 codes are mostly up to the employer so the description can be anything you want (try "HSA"). Because box 14 codes are not standardized, TurboTax won't be able to use it to automatically update anything, which is what we want.
Note that this same process is used by employers who add HSA contributions as a Section 125 benefit but don't remove the HSA contributions from Wages.
Then, when you enter the HSA contribution on the bottom line on the "Let's enter your HSA contributions" screen, TurboTax knows about only the one contribution, and correctly puts it on line 25 on the 1040, and also won't report an excess contribution (unless you really had one). Win-win-win.
