HSA contribution

[schlankae]

Hello,  I was under the impression HSA contributions (W2 Box 12 Code W, Includes Employer and Employee contributions) are not taxable.   Why did my refund shrink by $1500 immediately when I entered code W  in box 12?

[AnnetteB6 · Accepted solution]

Entering information into your return regarding HSA contributions is a two-step process.  Each step is likely to cause the refund/balance due number to change because TurboTax constantly updates the calculations as you go through the return.  

The first step occurs when you enter your W-2 which includes contributions to the HSA.  After entering the information from your W-2, the amounts contributed to the HSA are included in your income (thus causing a higher balance due or lower refund).  

Then, the second step is to verify your eligibility to contribute to the HSA due to coverage under a High Deductible Health Plan.  This results in the HSA contribution being removed from your income since you were eligible to make the contributions.  Therefore the balance due amount will drop or the refund amount will increase.  

To go directly to the section of your return to verify your eligibility, use these steps:

• On the top row of the TurboTax online screen, click on Search (or for CD/downloaded TurboTax locate the search box in the upper right corner) 
• This opens a box where you can type in “hsa” (be sure to enter exactly as shown here) and click the magnifying glass (or for CD/downloaded TurboTax, click Find)
• The search results will give you an option to “Jump to hsa”
• Click on the blue “Jump to hsa” link and enter your information

[Mike9241]

when you enter the W-2 at first Turbotax treats the 12W as an excess contribution resulting in a higher income tax. once you complete the 8889 the contribution should be nontaxable dropping your taxes back down. 

[Astrojogr]

Is this new for tax year 2022? I didn't get the deduction on my 2021 taxes. 

[MayaD]

No. The only difference for 2022 is the contribution limit. For 2022, if you have self-only HDHP coverage, you can contribute up to $3,650. If you have family HDHP coverage, you can contribute up to $7,300. 

Form 8889: Health Savings Account (HSA) is used to report HSA contributions, distributions, and withdrawals.

TurboTax will automatically fill out Form 8889 if you and/or your employer contributed to an HSA (usually indicated by code W in box 12 of the W-2), if you used funds in your HSA (reported on Form 1099-SA), or if you inherited an HSA.

If you believe you didn't complete the HSA section on your 2021 return, you need to amend the return to adjust your entries.

How do I amend my federal tax return for a prior year?

[Opus 17]

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@Astrojogr  wrote:

Is this new for tax year 2022? I didn't get the deduction on my 2021 taxes. 

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You never get an extra deduction for HSA contributions made by payroll deduction.  Your employer should reduce your W-2 box 1 taxable wages by the amount of the HSA contributions.  Since the income is removed from box 1, it is never taxed.  You can't also get a separate tax deduction.