Line 12c, Code W. on W-2 Form

[drivas88]

Long story short, I had an HSA account back in 2012-2015 and had funds left over in that account. I never used those funds, since I RARELY go to the doctor and now they are appearing on my 2020 W-2 and I am being taxed for them. My problem is, I CANNOT for the life of me, find who is reporting these funds to the IRS. I have contacted my former employer and also contacted ADP, who issued me the debit card back then and NOTHING. I have even tried contacting the IRS for help on figuring out who is reporting these funds, to withdrawal these funds and avoid from getting taxed again. 

[Opus 17]

Your question doesn't make sense.

The only thing reported on your W-2 is new contributions made by payroll deduction (your money and employer match money are both reported on the W-2).  This is in box 12 with a code "W".  Be aware that your W-2 may have several box 12s, they might be called 12a, 12b, etc. but what counts is the dollar amount and the capital letter code.  Box 12 reports several things including 401k contributions, so you might have entered a box 12 item and selected the wrong code.  If your W-2 does have an item in box 12 with code W, you need to ask your employer why it's there.

Spending from the HSA is reported on a 1099-SA issued by the HSA bank.  You either spent money this year or you didn't, and if you did, you need to report it.  (Just so you know, you can spend money from an HSA at any time for qualified medical expenses even if you aren't allowed to make new contributions because you aren't enrolled in an eligible insurance plan.)

The only time the tax program needs to know the balance in your account is if you made excess (not allowed, not eligible) contributions, in which case the balance in your account is needed to calculate the penalty for excess contributions. 

If your tax return is reporting that you made excess contributions and owe a penalty, double-check your W-2 entry. If your W-2 really does have an item in box 12 with code W, but your employer did not make HSA contributions for you, you need to contact your employer for a corrected W-2.  That's all there is to it--the payroll company or employer can't pretend they don't know why your W-2 has a code W item because they created the W-2.

If your W-2 is incorrect and you can't get it corrected, you can file with a substitute W-2 form, but you should expect the IRS will send you a letter and bill you for the excess tax, so you will have to try and convince them that your W-2 is incorrect.  Go back to the W-2 and edit it to remove the code W item, then check the box for "substitute W-2" on the page listing unusual circumstances. 

[drivas88]

This particular code is on 12C to be exact.  12A has code DD and 12B has code D, which applies to my current employer. I have asked my current employer about the code on 12C and they have no idea where this came from. I even looked on previous W-2's from previous years and this dollar amount never appeared on other years. :( When I filed my taxes through Turbotax, it said I could "Withdraw" these funds, to avoid being taxed. I just want to know WHO is reporting these funds, to either withdraw them or move them somewhere else, if needed. Hope this explains it better.

[Opus 17 · Accepted solution]

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@drivas88 wrote:

This particular code is on 12C to be exact.  12A has code DD and 12B has code D, which applies to my current employer. I have asked my current employer about the code on 12C and they have no idea where this came from. I even looked on previous W-2's from previous years and this dollar amount never appeared on other years. :( When I filed my taxes through Turbotax, it said I could "Withdraw" these funds, to avoid being taxed. I just want to know WHO is reporting these funds, to either withdraw them or move them somewhere else, if needed. Hope this explains it better.

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If you have a dollar amount in box 12c with code "W", that indicates your employer made an HSA contribution, or that you made an HSA contribution via payroll deduction.  If that is wrong, and you don't get it corrected, the IRS will send you a bill for taxes and penalties.  Either the employer gave bad information to their payroll company (ADP?) or ADP pulled bad info from thin air.  Either way it must be corrected.  I can't tell you how to navigate that bureaucracy other than your employer needs to tell the payroll company that your W-2 is wrong and needs corrected.  If neither party will take responsibility, you might try making a compliant to your state labor board, since this mistake will cost you taxes and penalties if it is not corrected.

If you want to file before receiving the corrected W-2, use the substitute W-2 procedure but expect the IRS to eventually send you a bill for the tax and penalty on the HSA amount.  

The penalty for having an excess contribution (which is what this looks like) is a percentage of the excess contribution, or a percentage of the funds in your account, whichever is smaller.  You could have avoided the penalty by withdrawing all the money and closing the account before May 17, but now it's too late, and if you withdrew money without using it for qualified medical expenses, the penalty for that is 3x bigger than the penalty for making an excess contribution.  

There's no point calling the IRS.  They only know what the employer tells them by way of the extra copy of your W-2 that got sent to the IRS.  That's why you need someone to take responsibility and issue a corrected W-2.