Hello - I got a $3850 tax break for an HSA in 2019. In 2020, virtually the same situation: income, HSA contribution, HDHP

[BillM223]

May I assume that you had Family HDHP coverage both years? Otherwise, you would have made excess contributions in both years with Self-only coverage.

Please tell us:

1. Type of coverage (Self-only or Family)

2. Age (under 55 or 55+)

3. Number of months of HDHP coverage

4. How many HSAs (the HSA belongs to an individual, so married couples could each have an HSA).

5. Did you have conflicting coverage at any point (employer insurance, health HSA, Medicare, etc.).

6. Where was your HSA contribution listed? On your W-2 in box 12 with a code of W or as a personal contribution made directly to the HSA custodian?

7. "I got a $3850 tax break for an HSA in 2019" - where did this tax break appear? On line 12 on Schedule 1 (1040) or as an exclusion from Wages on your W-2?

And, finally, what was your question about 2020?

[jn100]

Hello,

Apologies for the delayed response. Looks like I may have over-contributed but I am 55+ so maybe not.  Answers to your questions below:

Please tell us:

1. Type of coverage (Self-only or Family)

>>Self-only

2. Age (under 55 or 55+)>>55+

3. Number of months of HDHP coverage>>12

4. How many HSAs (the HSA belongs to an individual, so married couples could each have an HSA).>>1

5. Did you have conflicting coverage at any point (employer insurance, health HSA, Medicare, etc.).>>no

6. Where was your HSA contribution listed? On your W-2 in box 12 with a code of W or as a personal contribution made directly to the HSA custodian?>>Box 12 code W.

7. "I got a $3850 tax break for an HSA in 2019" - where did this tax break appear? On line 12 on Schedule 1 (1040) or as an exclusion from Wages on your W-2?>>It shows in TurboTax as a tax break. Looking at the 2019, it is not on line 12.

And, finally, what was your question about 2020? TurboTax is showing no tax break for it in 2020. Why not?

[BillM223]

The HSA tax break appears in two different ways.

1. As code W in box 12 on the W-2. 

   In this case, the dollar amount with code W is removed from Wages in boxes 1, 3, and 5 on your W-2 before the W-2 is printed. There is no HSA deduction on the tax return because those HSA dollars were never in your income in the first place. Note that the code W amount is the sum of what your employer contributed to your HSA AND what you contributed through payroll deduction.

2. As an above-the-line deduction on line 12 of Schedule 1 (1040). This is the sum of HSA contributions that you made directly to the HSA (i.e., not through your employer).

In neither case could you have legally gotten a $3,850 tax break for your HSA if you had Self-only HDHP coverage.

"Looking at the 2019, it is not on line 12."

OK, where was it? What form? What line? It was supposed to be on line 12 - but see above.

"TurboTax is showing no tax break for it in 2020. Why not?"

Please see my explanation above. It is common for taxpayers who made direct contributions one year to think that there was no tax break the next year when they switch to employer contributions, but there really is.

In fact, when you switch to employer contributions, it's even better than you imagine. As I noted above, the code W amount is removed from Wages in boxes 1, 3, and 5, which means that not only do you not pay federal income tax on the contributions, but you also do not pay Social Security or Medicare taxes on the same contributions - an additional savings of 6.2% of the HSA contributions.