I don't understand how the HSA Deduction is being calculated on Form 8889

[deuce1313]

I am working on a Tax Return where my Clients W-2 has three codes in Box 12- code D, code DD and code W. The Client had no distributions during 2019 from his HSA Account. Form 8889 is showing that he has an HSA Deduction of $1,035 which is the $3,500 maximum contribution amount for a single person less the $2,465 in Employer Contributions in Box 12- code DD on his W-2- is the $1,035 deduction accurate?

[AnnetteB6]

Box 12 Code DD has nothing to do with the Health Savings Account.  Code DD is the cost of employer-sponsored health coverage.

Box 12 Code W reports company contributions (including employee contributions) to the Health Savings Account.  This amount should be reported on Form 8889 as a contribution to the HSA, but it should not be shown on Form 1040 Schedule 1 line 12 as a deduction.  Employer contributions to the HSA are pre-tax and not deductible on the tax return.  

If the W-2 indicates that $2465 has code W in box 12, then Form 8889 is showing that an additional $1035 can be contributed to the HSA before the due date of the return and taken as a deduction on Form 1040 Schedule 1 line 12.  

@deuce1313

[Critter]

@deuce1313 

If you are a paid tax pro completing a client's return and you are having trouble with the professional program you are using then contact them for help with data input questions. 

[Critter]

And as my teacher used to say ... when in doubt READ the form ... every word on every line since the form has all the rules written into them ... pay attention to line 3  ...  https://www.irs.gov/pub/irs-pdf/f8889.pdf

[BillM223]

"is the $1,035 deduction accurate?"

It depends - did your client actually contribute $1,035 directly to the HSA, bypassing his/her employer? If so, it is correct. If not, then there should not be a $1,035 on form 8889, for all that it is the difference between the annual HSA contribution limit for Single HDHP coverage and the code W amount in box 12 on the W-2.

If this were an actual direct contribution, the $1,035 would appear on line 2 of form 8889 as well as on line 12 of Schedule 1 (1040).

As Annette pointed out, the code DD amount is the sum of the premium payments by the employer and the employee through payroll deduction towards the HDHP policy. 

I find it a remarkable coincidence that the code DD amount just happened to be the same of the difference between the code W amount and the annual HSA contribution limit.

In fact, it is somewhat unbelievable. I am not up on current pricing for HDHP policies, but that amount seems rather cheap - so cheap, in fact, that I question whether the W-2 box 12 amounts were correctly entered by the employer.

Before you go any farther down this road, I suggest you ask the employee to confirm with his/her employer that the dollar amounts in box 12 conform to the definitions as given in the IRS W-2/W-3 Instructions.