My HSA pre-tax contributions are showing as employer excess contributions and are added to my income

[rsuntag]

I contribute $3350 pre-tax money to my HSA.  My employer contributes $0.  Nothing was withdrawn from my HSA.  This amount shows on my W-2 line 12b as w $3350.

Turbotax fills out form 8889 apparently wrong:

Line 2: HSA contributions you mode for 2016:  $0. -- why is this $0 when the contributions were made by me (pre-tax)?

Line 12 is showing my $3350 as excess employer contributions - but they were made by me, not my employer, and they were not excess - they were within the limits?

Net result - the $3350 that I contributed pre-tax to my HSA is now being listed on line 21 of my 1040 as "other income" and I'm paying tax on it?  How did Turbotax take my pre-tax HSA contribution and make it taxable "other income"?

[PaulaM]

Box code 12 W is used for HSA contributions. Contact your employer to correct your W-2.
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[jsmithwsx]

Its a turbotax issue, not a W-2 issue. Other tax programs don't make this mistake.

[BMcCalpin · Accepted solution]

Your employee contributions through a salary reduction plan are supposed to appear on line 9 of the form 8889, not on line 2. Here's why:

It is counter-intuitive but employee contributions to an HSA made through a salary reduction plan with the employer are called employer contributions by the IRS. This is because both the contributions made by the employer and contributions made by the taxpayer through a salary reduction arrangement are treated the same way (they are both pre-tax).

The IRS says in Publication 969: "Contributions made by your employer aren’t included in your income. Contributions to an employee's account by an employer using the amount of an employee's salary reduction through a cafeteria plan are treated as employer contributions." 

You should have no HSA deduction on line 13, because your HSA contributions were already removed from Wages in boxes 1, 3, and 5 on your W-2. Line 13 is only for contributions that you made outside of your employer (i.e., with post-tax dollars, not the pre-tax dollars in your salary reduction arrangement).

The most likely reason that excess contributions are showing is because the HSA interview has not been completed. The IRS assumes that contributions are taxable until a properly completed form 8889 is attached to the return.  TurboTax completes form 8889 only at the end of the HSA interview.

To do this in TurboTax Premier:

•  please go to Federal Taxes->Deductions & Credits->HSA, MSA Contributions
•  either Start or Edit to restart the HSA interview
• Please be sure to go all the way to the end of the interview.

NOTE: there is nothing wrong with your W-2 if the complete amount of the contributions is with code "W" in box 12 of the W-2.

[jch-hodge1]

I had a similar problem with a return. Box 12 of the W-2 had code W and the amount entered. The problem I had delt with the way the employer entered wages on the W-2. On the state wages the employer added the amount of HSA contributions to the state wages showing a higher amount of taxable wages to the state. Turbo Tax picked this difference up as excess contributions and created a penalty tax. When I changed the state wages on the W-2 to match the Federal wages it corrected the error. I don't know if this applies to all states, but it made a difference on Arkansas. This corrected the Federal return and treated the HSA contributions correctly.

[lparkerjr]

I am having this problem with my California state return today.  I don't see where to fix it. 

[BillM223]

@lparkerjr

What is the issue with your California return? HSA contributions are NOT deductible in California.

Since HSA contributions made through the employer are removed from Wages in boxes 1, 3, and 5 on your W-2 before it is printed, this contribution has to be added back to federal income to make California state income.

If this is what is happening on your California, it is correct.

[Paresa]

I have the same problem, box 12w is Cafe contribution and not supposed to be entered there. That is a very serious error is Trubotax which is clearly still there in 2023. I was supposed to received 2K refund and when I entered  HSA information I am now owing :( . That does not make any sense. Any alternative to Trubotax which is less error prone?

[DawnC]

HSA contributions (employee and employer) are entered in Box 12 with a code W.   After you enter your W-2, you will need to go through the HSA questions and confirm that you were covered under an HDHP (high deductible health plan) which is required to make HSA contributions.   

Search for HSA and use the Jump to HSA link to get to those questions.   But do not enter your contributions in that section again.  TurboTax automatically transfers the Code W amount from Box 12 to the HSA Form 8889.    See Bill M's detailed answer above - your W-2 is fine, you just need to tell TurboTax that you had qualifying HDHP coverage.   @Paresa 

[Paresa]

thanks for your answer, I am not saying there is something wrong with my W2. But there is something wrong with TurboTax!!!!

I can see the amount is already transferred automatically from 12W. However, it clearly mentioned do not include Cafe contribution. Out of 6325$ contribution to my HSA through payroll 6000 was Cafe contribution.  

That should not be added to this and I cannot edit that. 

[RalphH1]

The IRS unfortunately did decide at some point to include the employee’s pre-tax deductions as “Employer Contributions” (leading to many a discussion like this).

@Paresa, here it is from the horse’s mouth, in the instructions for Form 8889. As DawnC said, you probably just need to make sure your high deductible health plan coverage is entered (unless there’s a double-entry of the cafeteria plan amount, and it’s also appearing as a contribution you personally made, on the “Let’s enter your HSA contributions” screen...).

If you’re still getting an unexpected result though, be sure to re-post, and we’ll figure out what’s going on!

[Paresa]

On my "Let's enter HSA contribution page" I have one field for "2022 Employer and Payroll Contribution". That is already filled from W2 and not possible to edit anymore. That is equal to total contribution I had which is 6325$. There is another field for: "Any contributions you personally made (not through your employer)" which I assume should be zero. 

I wish I could send a screenshot but that is not possible in here. If you can give me your email that make i easier to communicate.

Just to add: In my W2 it is clearly mentioned that 6000$ is Cafe Contribution. And in this page, it is mentioned  "Don't include contribution from Cafeteria plans, IRA, or rollover from other health plan account". So I should have been able to enter 6325-6000=325 which is only my employer contribution here.

But as I said the field is pre-filled and I cannot edit it :(

[RalphH1]

We’re not able to provide e-mail addresses (although I agree it would make this easier). You can contact us for a phone call (like this), which also facilitates this kind of troubleshooting. But I’ll keep an eye on this thread for a few hours, in case you’d like to try to figure it out here...

It sounds like your contribution page is correct (with no double-entry). I’m guessing you proceeded a few screens past that to the High Deductible Health Plan screen, and selected “Yes” (that you were covered) and family plan as the type. Is this the case? Also, did you have any distributions from your HSA? (Reported on a 1099-SA.) Your tax could jump up if you entered that info without telling it everything was used on “qualified expenses.”

@Paresa, are you able to print your return yet? If so, posting whatever numbers you’re seeing on Form 8889 (lines 16 and 21), Schedule 1 (line 8f), and Schedule 2 (line 8, 17c and 17d) would be very helpful.

[Paresa]

Yes, I already passed all those questions and I answered that I was qualified for HDHP. I had 82.43 distribution only for medical expenses. I tried printing it last night but it was asking for some review and then payment. Is there a way I can print it without payment for now, before I make sure this problem can be resolved at least?

[RalphH1]

You can select “Tax Tools,” then “Tools,” then “View Tax Summary,” then “Preview my 1040.” And if you scroll down past the 1040 itself, whichever numbered schedules are included in your return should be showing there. (@Paresa, Sorry—I should have mentioned that in my last post!)