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"?

[JohnB5677]

First, let's make sure everything is cleared out.  You should delete the W-2 and also any supporting HSA documents.

There are two ways to clear entries from your return.

The first thing to try is to go into the section that has the form  (Less Common Income)

1. Select the entry that you want to clear. 
2. On the right hand side there is a trash can. 
3. Select the trash can and confirm you want to delete that form.

 To Delete a form:

1. On the menu bar on the left that shows.
   1. My Info
   2. Federal
   3. State
   4. Review
   5. File
2. Select Tax Tools
3. On the drop down select Tools
4. On the Pop-Up menu select Delete a Form
5. This will give you all of the forms in your return
6. Scroll down to the form you want to delete
7. Select the Form
8. Click on Delete.

Always use extreme caution when deleting from your tax return.  There could be unintended consequences.

Re-enter the W-2.  If it includes the total amount that was deposited to the HSA you are not going to enter it again in the HSA section.  Payroll HSA contributions are completely covered on the W-2 Box 12 code W.  If you write a check and deposit it to the HSA it would be posted to.

1. Deductions & Credits
2. Medical
3. HSA

This will correctly post deduction for the HSA.

You will then post the HSA distribution  (Form 1099-SA).

1. Deductions & Credits
2. Medical
3. HSA

Be sure to answer Yes you used it for medical expenses.

@swburkham

[smueller71]

Thanks Bryan.  Your message was spot on.  It dumped about $1700 back into my refund.

[shecagle26]

I entered the HSA amount in box 12 of W2.

When I enter the 1099 SA distribution AND certify that I'm on the HDHP, my refund goes down by $260.  I have read all these comments and still can't figure out why my refund goes down.

[Critter-3]

The extra income on the W-2 could have dropped the refund (or affected a credit)  and has nothing to do with the HSA contribution at all.  Nothing happens in a vacuum on a return.   Review the entire return to see what is being calculated. 

[DBTAX]

This is still not making sense.  My refund goes down by quite a bit when I enter the HSA contribution on my W-2.  The comments above to enter medical expenses in "Deductions..." is contrary to the instructions with TTax and counter intuitive to the HSA concept. There is an error in the calculation or something in the user instruction is incorrect. 

FROM TURBOTAX

"Can I deduct medical expenses that were paid with an HSA, MSA, FSA or HRA?

Answer:

No, you can't deduct medical expenses that were paid with a health savings account (HSA), medical savings account (MSA), flexible spending account (FSA) or health reimbursement account (HRA). These are all pre-tax accounts, and you can't deduct medical expenses that were paid with a pre-tax account.

When you use a pre-tax account to pay for medical expenses, you're paying with tax-free money. You're not allowed to deduct tax-free money because it's considered double-dipping.

With the increased standard deduction starting in tax year 2018, the chances of being able to deduct medical expenses is significantly lower. Taking the medical expenses out of a pre-tax account is more beneficial to the taxpayer than taking the expenses as a deduction in the event you take the standard deduction."

[Critter-3]

You missed a step ... 

The HSA contributions are already pre-deducted on your W-2.  When you first add the W-2 (with code W in box 12), it ADDS tax (and a penalty) to your tax return, because it assumes you are NOT eligible to contribute to a HSA.  Later on in the interview, you will tell TurboTax that you have a HDHP and did not have other health insurance.  When you do that, it removes that tax and penalty that it gave you when you entered your W-2 (with code W in box 12).

You just have not yet completed the HSA area in the medical section of the program yet. Until you confirm that you are eligible to make the HSA contribution it is considered taxable. 

[DBTAX]

It appears that schedule 1 "Additional Income" and Form 8889T are not populating correctly and causing the HSA contribution to be treated differently.  I did not recognize the amount auto populated in my Sched 1 and 8889T was not auto-populating correct data from my W-2 and HSA, coverage info.  @JohnB5677

[msmith627]

For the last several years Intuit has demanded that I withdraw several thousand dollars from my HSA account to avoid being taxed.  The first time I foolishly followed there instructions even though I only contribute 3250 for that tax year.  They are counting my HSA balance, accumulated over the last 10 or so years as taxable income.  I did use my HSA to purchase an emergency medical kit and eyeglasses but these are legitimate medical expenses that came to less than 1000 dollars.  So why is Intuit telling me that I need to withdraw over 5 grand to avoid being taxed?  I'm trying to accumulate enough money to have expensive dental surgery which my company's lousy health care plan barely contributes.  No one I know pays taxes on their HSA and I've asked almost everyone.  I have colleagues with more than 30 grand in their accounts and they don't pay taxes on it.  So why is Intuit insisting that my balance be less than 12 grand?  It doesn't make sense.

[NCperson]

@msmith627 - you will need to provide some more specifics...... 

1) how much was withheld from your paycheck in 2021 (box 12 code w of your W-2)

2)  please review form 8889.... a) what is on line 2 and b) is on Line 9?

3) also on Form 8889 - what is on lines 14a, 15 and 16. 

let's start there 

[bux72]

For 2022, it does not appear we are getting the HSA deduction. W2 box 12b has $8100 but my spouse contributed that. Under Deductions, HSA, it carries over the $8,100 & we added an additional $200. I'm retired & under my spouse HDHP.

Turbo Tax is telling me that I dropped coverage sometime in 2022 but that is not the case. Why is it that we don't appear to be getting the full $8,300 deduction for 2022 CY? Line 10 (Adj to Income) on 1040 only shows the additional $200 we sent in as non-payroll deduction.

[BillM223]

First, HSA contributions are shown in two different places: on the W-2, and on Schedule 1, line 13. 

If you contribute to your HSA by means of payroll deduction, then that amount appears on your W-2 in box 12 with a code of 12, added to any amount contributed by your employer. Then, before your W-2 is printed, this code W amount is removed from Wages in boxes 1, 3, and 5. Therefore, you never "see" this deduction, because it was never in your income in the first place.

If you contribute to your HSA directly (i.e., not through your employer), then this amount appears on Schedule 1, line 13. 

Your employer deduction appears on line 9 on the 8889, and the directly paid contribution appears on line 2 of the 8889.

****

"Turbo Tax is telling me that I dropped coverage sometime in 2022 but that is not the case. " 

Your issue is with the question that asks "What type of High Deductible Health Plan did [name] have on December 1, 2021?"

​​​​​​​Unfortunately, the question does not clarify that it is only for a small group of taxpayers and that all other taxpayers should answer "NONE".

NOTE: each spouse can have an HSA. The use of "you" below refers to whichever spouse's name was in the question above.

This question is trying to determine if you utilized the "last-month" rule in 2021 (yes, 2021). The last-month rule lets you use the full annual HSA contribution limit if you had HDHP coverage on December 1, even if you were not covered by an HDHP for all of the year.

However, the catch is that if you used the last-month rule, the IRS requires that you stay under HDHP coverage for all of the following year (2022).

***NOTE*** This question occurs on the taxpayer who does not have an HSA, so never had a chance to tell TurboTax in the HSA interview what their HDHP coverage was for 2022.

So, the fix is this: go back to the question (at the end of the HSA interview), and:

• If you had HDHP coverage for all of 2021, then enter NONE 
• If you had no HDHP coverage for all of 2021, then enter NONE.
• If you did not have an HSA in 2021, then enter NONE.
• If you had an HSA in 2021 but did not contribute to it in 2021, then enter NONE.

Only taxpayers who had their own HSA in 2021 AND who contributed to their own HSA in 2021 should answer “Family” or “Self” or “None” (which can be the right answer in some cases).