entered $$ from my W2 box 12b with code W is 7,884. This HSA contribution by definition is employer plus employee contribution to HSA. My issue is that the employer contributed zero but turbotax entered all 7,884 on line 9 of the form 8889 which effectively didn't give me the income deduction for tax free hsa contributions??? Why? I believe line 9 s/b zero but turbotax fills that in?
"This HSA contribution [box 12 with a code of W] by definition is employer plus employee contribution to HSA" - this is true.
"but turbotax entered all 7,884 on line 9 of the form 8889 which effectively didn't give me the income deduction for tax free hsa contributions??? " - this is not true.
The IRS calls the sum of what the employer contributes plus what the employee contributes through payroll deduction to be the "employer contribution". This is what appears both in box 12 on the W-2 with a code of W AND on line 9 of the 8889.
This "deduction" does not appear on line 12 of Schedule 1 (1040) because it's not supposed to.
Instead, the code W amount is removed from Wages in boxes 1, 3, and 5 on your W-2 before the W-2 is even printed by your employer.
That's the reason you don't see a "deduction" for the code W amount - because that amount was never in your income in the first place.
Furthermore, because your payroll contribution is treated this way, you are getting an additional tax deduction that you are not even aware of. As I said above, the code W amount is removed from Wages in boxes 1 (income), 3 (Social Security), and 5 (Medicare). This means that not only is your federal income tax reduced (because you are reporting less income), but your Social Security and Medicare taxes are also reduced.
In your case, that means you have saved an additional $603 in taxes (7.65% times $7,884) that you weren't even aware of.
From your description, everything concerning the HSA is correct on your return.
One tl;dr and one additional tip.
tl;dr -- the income reported as HSA is already subtracted from your box 1 taxable wages, so you don't pay taxes on it. It's not listed as a separate deduction because it is already not included in your taxable income. If you think box 1 is wrong, you need to talk to your employer.
Tax tip: The HSA limit for 2019 was $7000 plus $1000 catch-up provision if you are 55 or over and have a family plan, which you must to contribute $7884 without causing an error. Now, if you want an additional deduction and to save more for the future, your spouse may be able to contribute an additional $1000 to an HSA in their name if they are also age 55 or over.
If you and your spouse are covered by a family HDHP and your spouse does not have any other medical coverage, then your spouse is treated as if she is also covered by an HDHP even if the plan is in your name. That means your spouse can contribute to an HSA. Your overall limit for 2020 is $7100 plus $1000 for each person age 55 or over. You can split the $7100 any way you want but the $1000 extra must be contributed to an account in the specific person's name. So you could contribute $8100 for 2020, and your spouse $1000, but you can't contribute $9100. Got it?
I like maximizing HSA contributions because it's basically a Super IRA. After age 65, you can withdraw for any reason and pay regular income tax like an IRA, or you can withdraw it for medical expenses (like part D premiums and co-pays) and pay no tax at all.
If your spouse is 55 or over and you want to maximize your HSA opportunities, your spouse can open an HSA in their name at a local or online bank, probably for a small monthly fee. You can invest in a diversified mutual fund to get a better growth than pitiful savings account interest. Just be aware that, if you and your spouse are both over 55, your personal maximum is each $8150 (for 2020) and your overall family maximum is $9150. (It's too late to make a retroactive contribution for 2019.)
I strongly agree that maximizing HSA contributions - such as by making sure your spouse also has an HSA when 55 or over - is one of the best tax-advantaged accounts you can have. As Opus points out, the contributions are not taxed when they go into the HSA, and when spent on qualified medical expenses, they are not taxed when they come out of the HSA, unlike normal IRA distributions.
And everyone eventually has qualified medical expenses.
Younger taxpayers don't tend to think of this, but long-term care insurance can be a critical part of preserving one's retirement funds when getting older (and more ill). But the premiums for long-term care insurance are based on when you start paying for the insurance - the younger you are, the cheaper the premiums will be (allowing for inflation-driven increases).
These premiums can be deducted on Schedule A as a qualified medical expense (note that there is a separate limit for these premiums that must be applied), but since the Tax Cut and Jobs Act of 2017, 10% or fewer taxpayers are able to itemize their deductions by adding Schedule A to their return.
However, any qualified medical expense can be paid from an HSA, without regard to whether you itemize or not. And because your contributions to the HSA are not taxable, you in essence get a discount on paying those long-term care premiums.
Please note that the announced HSA contribution limits are as follows:
2019 – 3,500 – 7,000 - IRS Pub 969
2020 – 3,550 – 7,100 - IRS Rev. Proc 2019-25
2021 – 3,600 – 7,200 - IRS Rev. Proc 2020-32
In each case and for each year, the annual contribution limit for an HSA owned by a taxpayer who is 55 or older is increased by $1,000.