ALABAMA: TurboTax Online does not have an option to input your HSA contribution for a deduction. This is a new deduction for 2018. Anyone know how to address this?

[BMcCalpin · Accepted solution]

As you know, Alabama just this year (well, 2018) allowed HSA contributions to be deducted for the first time.

However, because of the way that the Alabama state tax return is designed, you do not need to add anything to your Alabama return to get the benefit of the HSA contributions, because the benefit will flow from the federal return.

If your HSA contributions were found in box 12 on your W-2 with a code of W, then this amount was removed from Wages in boxes 1, 3, and 5 on W-2 when it was printed. This is not taken as a deduction, because it was never in your income in the first place. Note that this assumes that your employer did not add back the code W amount to state wages in box 16 as they probably did in years prior to 2018. Since Wages flow from the federal to the state return, you should not have to do anything to get the HSA benefit in this case.

If your HSA contributions were made directly to the HSA custodian (not through the employer), then this amount appears on line 12 on Schedule 1 (Form 1040) on the federal return, and will appear automtically on line 12 in Part II on Alabama form 40.

So you should not have to do anything to get your HSA benefit on your Alabama return in the case of direct contributions to your HSA either.

[Edited 3/31/202 3:27 pm CDT - updated for 2019]

[jdobbins127]

My Alabama wages in box 16 are $2,400 higher than box 1 on my W-2.  This is due to the fact I contributed $2,400 to my HSA and my employer contributed $1,000.  Box 12D did show $3,400 with a "W", but I think it is correct to add back the employee contributions to Box 16.  Alabama allows for a deduction for employee contributions into HSA on Form 40 - Part II line 12.  Otherwise, why would they need this line on the Alabama return for 2018?

[BMcCalpin]

No. The way this is handled - and it's counter-intuitive - is that your employer's contribution PLUS your contribution by means of payroll deduction are both supposed to be the code W amount in box 12 on your W-2. Your employer correctly entered $3,400 to the code W amount, but should NOT have added your contribution made by payroll deduction to Alabama wages. The purpose of line 12 is to show any "personal" contributions, that is, contributions you made directly to your HSA, not made through payroll deduction. Based on what you have said, you didn't make any direct contributions to your HSA.

Please go back and tell your employer to remove the entire code W amount from state wages and issue you a corrected W-2. Otherwise you will not be getting the credit you deserve for your payroll contributions (and overpaying Alabama tax).