Aren't HSA contributions pretax? Why does my refund drop by $1500 when I input $4000 on form W-2 box 12 code W "Employer contributions to Health Savings Account"?

[aaron-henson]

This is my first year using an HSA. I contributed $3000 and my employer contributed $1000. How is it that my federal refund could be reduced in any way by using an HSA?

[HollyP]

Yes, this is because entering your HSA is a two-step process in TurboTax, so you just have to keep going. Since you are not done entering all your information, this change in the refund is correct. Remember that refund number is just a work in progress until you're actually done entering in all your information.

HSA information is entered in 2 sections of TurboTax. First in Wages & Income as a W-2, 12 code W. But then you have to also enter it in the Deduction & Credits section under HSA, MSA Contributions too. So long as you meet all the requirements such as only using the HSA distributions for medical purposes and having a high-deductible health plan (HDHP) then your contributions on the W-2, box 12, Code W will not be taxed. See the following TurboTax FAQ for more info. https://ttlc.intuit.com/replies/4787864

To jump to the HSA, MSA Contribution section take these steps:

1. Sign in to TurboTax Online
2. Click take me to my return  
3. Click Federal Taxes
4. Click Deductions & Credits 
5. Look for the Medical, HSA, MSA Contribution section and follow the on-screen instructions

Tax Tip:  If you took any distributions from your HSA then you will receive a 1099-SA. See the following TurboTax FAQ for more info. https://ttlc.intuit.com/replies/3301402

[laura891808]

Even answering yes to only used for medical expenses it still deducts from refund and I didn’t over fund my hsa

[ahahaha]

I'm seeing the same thing.  Doesn't make sense.

[max_out]

why would Gov tax me on HSA fund that are reserved for medical .... HSA fund cannot be spent towards anything but medical without HSA approval anway... i mean even buying OTC medication is not approved.  how would gov tax you on it, my understanding that HSA funds are reserved for person to invest it if not spent so person can also use it at retirement time.  

[max_out]

once HSA are taken out of my paycheck i cannot claim it back, so how does gov tax me on those moeny if they are not spent on medical at the time of that year...

[x0bkhawk]

I found there is more to this answer. I was taxed on the W-2 Box 12 HSA contributions till I did "all" of the following steps:

1) Enter an amount on the Wages & Income W2 Box 12 (getting taxed for the full amount of your HSA contribution)

2) Then under deductions & credits: Enter your 1099-SA and claim money spent in box 1 was only for medical expenses. (This won't change that you've been taxed for your contribution)

2) Continue following turbo tax deductions & credits till it asks about your High Deductible Health Plan (HDHP). For the HSA contribution to be tax free, you also have to be enrolled in an HDHP. When you answer "yes" to being enrolled in an HDHP the taxed amount on Box 12 will be removed. 

Hope that helps those still struggling with this issue as I was.

Bryan

[BillM223]

@x0bkhawk

I am glad, Bryan, that you see how the HSA works.

One of the things that most confuses taxpayers is that when you have the "employer" contribution (that is, what your employer contributes AND what you contribute through payroll deduction), this amount is removed from Wages in Boxes 1, 3, and 5 before your W-2 is printed. This amount appears in Box 12 of your W-2 with a code of W.

You can't tell from looking at the W-2 if the employer has removed the HSA amount, but this is why the HSA is a tax benefit - because the HSA contribution was never in your income in the first place.

And this is the reason you see your refund drop when the code W amount is entered into TurboTax - that amount that had been removed from Wages has to be added back per the IRS until you certify that you had the proper HDHP coverage, which you do in the HSA interview. 

[erik-p-johnson]

Hoping for some insight.  I entered the contributed to my HSA from box 12B W, but when I got to the deductions area that asked if I had a HSA and when I certified that I had a High Deducible plan all year I actually saw my return drop (quite a ways in fact).  Any ideas?  

[tharrill77]

My wife had an HSA for the last 10 months of 2018 and the first 2 months of 2019, when she turned 65 and was no longer eligible. I entered the W-2, box 12 information and then entered the distribution information for 2019. Her employer had reported that their was a contribution made in 2019 for 2018 of $144. This was included in the box 12 amount of $575 for 2019.

TurboTax showed a contribution limit of $750 for 2019 which is in excess of the contributed amount of $575. But then Turbo Tax showed there was an excess contribution of $256 which should be withdrawn from the account.

How is this excess contribution calculated since the contribution amount was only $575 and the contribution limit was $750?

All contributions into the HSA were used in 2019 for qualified expenses and there are no funds available to be withdrawn.

[tharrill77]

quick correction to above question. The W2 amount was $575 and the 5498-SA amount contributed was $718.75. The difference was the $143.75 that was contributed in 2019 for 2018. This amount was also shown on a corrected 5498-SA (duplicate reported).

[BillM223]

First, being 65 does not disqualify you for contributing to an HSA - being on Medicare does. So long as you are not on Medicare but are still under HDHP coverage, you can go on contributing to your HSA. Please reconsider your entries for HDHP coverage in light of this. If you had HDHP coverage on the first day of the month and no conflicting coverage (like Medicare), you are considered covered by HDHP for that month.

As for your excess (which will go away if you stopped at February when you could have continued), there are a number of possibilities.

1. $750 is the correct HSA contribution limitation for 2 months for Single HDHP coverage for someone who is 55+.

2. You showed $575 in box 12 of the W-2 with a code of W.

3. On the screen with the heading, "Let's enter [name]' HSA contributions", you entered nothing in line 2 (the personal contributions).

4. On the screen that asked if you "overfunded" your 2018 HSA, you answered No.

5. On the screen labeled "Did your employer tell you about any other contributions?" you answered Yes, and then entered the $143 on the line that reads "employer and payroll contributions made in 2019 for tax year 2018".

Please confirm the previous items.

If you have no funds in the HSA to withdraw the excess, you will have to carry that exces over to the next year. However, if the HSA account value is zero on December 31st, then the penalty for carrying excess contributions is zero.

Once such a taxpayer goes on Medicare, then it will not be possible to make any more contributions, so it will never be possible to pay back the excess, but since the penalty falls to zero because the HSA is empty, it doesn't matter.

@tharrill77

[chrisbushe]

I've done the two step process and it reduced my tax refund by nearly $1000.  Did I do something wrong?

[AnnetteB6]

As long as you have not over contributed to your Health Savings Account, there is no reason that making a contribution should reduce your refund.  

Here are some things to double-check:

Look at your W-2 entry to see that your HSA contributions were reported in box 12 with Code W.  Make sure the number entered is accurate.

You should go back through the HSA section of your return and double-check the entries to be sure that there is nothing entered as an additional HSA contribution.  Pay close attention to the screen titled 'Let's enter your HSA contributions' and also the following screen asking about any additional contributions that your employer told you about.  Answer Yes, and then be sure all the fields are blank.

Use these steps to return to the HSA section of your return:

• On the top row of the TurboTax online screen, click on Search (or for CD/downloaded TurboTax locate the search box in the upper right corner)
• This opens a box where you can type in “hsa” and click the magnifying glass (or for CD/downloaded TurboTax, click Find)
• The search results will give you an option to “Jump to hsa”
• Click on the blue “Jump to hsa” link and enter your information

@chrisbushe

[swburkham]

Yes, I saw the same thing.  I went back and even zeroed out everything for HSA as if I did not have any contributions or distributions and the error continued to be there as if Turbo Tax has a bug that for some reason is keeping the tax in and not showing anyone why.   It is swinging my taxes by several hundred dollars which is roughly 28% on the originally entered distributions.  I have been through the two-step process several times, updated Turbo Tax, and still can't seem to get back to where I was before entering in the HSA information.