IRS Form 8889 Line 9 Instructions Overstate Contributions

[MrOto]

I thought Turbo Tax had an error until I was pointed to Form 8889.  It follows the instructions to the letter.  But the instructions are wrong.  Line 9A takes Box 12, Code W, the full-year contributions to your HSA.  If you max out your HSA as an individual or family, you will see that amount.  Some of the 2020 contribution was made in 2021, as often happens when the last pay period of the year straddles two years.  Your HSA Administrator will send you a Form 5498-SA which shows total contributions made in 2020 in Box 2, and total contributions made in 2021 for 2020 in Box 3.  These will add up to the amount shown in Box 12, Code W of your W-2 form.  Form 8889, Line 9, essentially instructs you to add Box 3 of the 5498-SA to Box 12, Code W of your W-2.  This looks like a mistake to me because you will always overstate your HSA contributions this way.  What it means is if you don't contribute the maximum, you likely get a small extra tax break by not paying taxes on money it thinks you put into your HSA.  If you max out your contribution as an individual or family, you get an extra tax burden of 6% for appearing to exceed the annual limit when you actually did not.  The instructions should be corrected to add Boxes 2 and 3 of the 5498-SA and compare this result that to the annual limits in determining if there was an excess contribution.

[BillM223]

"But the instructions are wrong."

Whose instructions are you referring to? The IRS' instructions for the 8889?

Pay periods that span the end of the year do present an "opportunity" where the employer puts the final HSA contribution in the books for one year (say 2020), but the actual HSA contribution is done a few days later in the following year (2021).

And you have to hope that the person doing the paperwork notes that the next year contribution was actually for the previous year. The benefits company used by my spouse's employer has not always been so careful.

The IRS instructions do presume that the code W amount does not contain any 2021 contributions for 2020. 

[MrOto]

Yes, I am saying the IRS instructions appear to be wrong.  By the time W2s are required to be mailed, all of the 2020 HSA contributions should be in the employers system and reported on the employee's W2.  The W2 as a report of the calendar year earnings and deductions accruals would contain the calendar year totals rather than just that received by 12/31.  I think that's why the W2s generally don't equate to the last paycheck in a calendar year.

[dmertz]

TurboTax accommodates this situation by asking if your employer told you about any other contributions.  Answering Yes will cause TurboTax to present boxes where you can make entries to treat the code W amount not entirely applying to the current tax year.