Each paycheck I had money deduced from my gross income by payroll to be sent to my HSA. That amount for the year is listed in box 12d of my W-2 with code W.
Now that I'm filing my taxes, TurboTax thinks that entire amount is a taxable employer contribution. Shouldn't this be a tax free employer contribution?
No, it is not a taxable contribution as long as you were eligible to make the contributions to the Health Savings Account (HSA) by being enrolled in a High Deductible Health Plan (HDHP).
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 that 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 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: