My W-2 has my HSA Employer Contribution listed as $6,750, however my employer only contributed $900. Why does California return add the entire $6750 to my taxable income?

[Lisa995]

The amount on the W2 code W is all the employer contributions and your contributions to the HSA through payroll....are you saying that amount on the W2 is wrong?

[BMcCalpin · Accepted solution]

As Lisa995 suggests, the amount with code W in box 12 on your W-2 is called (by the IRS) the "employer contribution". This amount is the sum of what your employer contributed (the $900) and what you contributed by payroll deduction (presumably $5,850).

NOTE: the entire code W amount is removed from Wages in boxes 1, 3 and 5 before your W-2 is printed. This is why the entire amount with the code W is added back to California income, because it was not even present in federal income, so has to be added back to California income in order to comply with the California statute that HSA contributions are not deductible in California.

The fact that the IRS calls both the employer's contribution and your contribution by means of payroll deduction the "employer contribution" is a source of confusion, but remember that they are treated the same way (withdrawn from Wages) - that's why the IRS calls them both by the same name..

[bhamstrom]

Thank you for the concise answer. Exactly explains it. Just what I needed to know.