Employer Incorrectly Reporting HSA Payroll Deductions

[lemons]

My question boils down to - Are my own payroll HSA allotments supposed to be reported under Code 'W' without reducing Box 1 wages?

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I do not have a cafeteria plan and I have no employer HSA contributions listed on my W2 - it's all my elective payroll allotment to my HSA. On my W-2, all of these direct-deposit contributions appear in Box 12 under Code 'W.' While at first, this appeared correct, my Box 1 wages, are *only* reduced by my elective 401k contributions rather than both tax-exempt [401k + HSA]. That is, I expect (Box 3 - Box 1) == (401k + HSA) if those two items are the only tax-modifying codes in Box 12.

Consequently, I have a significant difference in my tax liability as calculated by TurboTax in the following two scenarios:

1. Report as suggested: include code 'W' and claim no additional personal HSA contribution deductions
2. Exclude code 'W': don't report code 'W', but separately claim these HSA contributions as my personal, deductible contributions (which they are)

Given I'm certain all Code 'W' contributions are my own income simply allocated to my HSA, it seems my W-2 reported Box 1 is incorrect - Code 'W' should not have been reported at all, at least not without reducing Box 1 wages accordingly. It's likely my employer changed withholding based on the allotment, but without changing my taxable (Box 1) wages.

(Further, reviewing my prior year tax returns, the magnitude of tax liability in situation #1 is higher than when I contributed to my HSA directly, instead of this year's direct payroll ACH.)

[AmeliesUncle · Accepted solution]

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@lemons wrote:

]That is, I expect (Box 3 - Box 1) == (401k + HSA) if those two items are the only tax-modifying codes in Box 12.

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That is where you are mistaken.  The HSA contributions ALSO reduce Box 3 and 5.  So there is no way of looking at your W-2 to determine if the HSA contributions were taken pre-tax.  You would need to analyze your paystubs to determine that.

The fact that your W-2 shows code "W" should mean the HSA contributions are all pre-tax on the W-2 (they reduce all of the boxes).

[lemons]

Ah, you are probably correct - thanks for clearing that up.

While I don't have the relevant pay stub on hand to confirm (thanks coronavirus...), my back-of-the-envelope calculations failed to take in to account some overtime that skewed my Box 3/5 wages higher and fooled me into thinking my HSA contributions we still part of those numbers.