It seems like several things could be wrong with that W-2. The difference of $3,450 between the amount in box 16 and the amount in box 1 seems wrong relative to code W amount (for a California resident).
What is the code in box 12a for the $18,500? I'm guessing that it's code D for an elective deferral to the S corp's 401(k).
Is the S corp owner a 2%-or-more shareholder in the S corp? I'm guessing Yes because the S corp health insurance amount has been included in box 1.
Does the $12,545 of S corp health insurance include the $6,900 HSA contribution?
California does not allow excluding HSA contributions from income, so if the HSA contribution was excluded from the box 1 amount, the California wages should be $6,900 higher than box 1. The difference of $3,450 implies that your HSA contribution was only $3,450, the contribution limit for self-only HDHP coverage, not $6,900 for family HDHP coverage. I assume that you had family HDHP coverage. Although California might question it, the discrepancy in the box 16 amount doesn't really affect your California tax return because the box 16 amount is included on your California tax return for informational purposes only. The addition of your HSA contribution to federal income is done separately on your California tax return.
Please confirm that your HDHP coverage was family HDHP coverage, not self-only coverage.
The $6,900 should have been included in box 1 of the W-2 and the contribution is to be treated on the shareholder's individual tax return as a personal HSA contribution, If the contribution was made under a cafeteria plan under the S corp, the code W amount is probably correct, otherwise the $6,900 should probably have been shown as a box 14 item rather than in box 12.
See Q&A-3 of IRS Notice 2005-8: https://www.irs.gov/pub/irs-drop/n-05-08.pdf
It seems that the $6,900 was not properly included in box 1 of the W-2. Since the HSA contribution was not included in box 1 of your W-2, if you don't get a corrected W-2 you would have to report the contribution as if you were a less-than-2% shareholder by simply entering the W-2 as is and have it reported on Form 8889 as an employer contribution for which you receive no deduction on the individual tax return. If the contribution had been included in box 1 of the W-2 you would need to enter the W-2 as is (including the code W entry), indicate that you made a personal $6,900 contribution (in addition to TurboTax separately recognizing the code W amount), indicate to TurboTax that your employer told you about other contributions, then enter negative $6,900 as an amount not reported on the W-2. This caused the code W amount to be moved from an employer contribution on Form 8889 line 9 to a personal contribution on Form 8889 line 1 so that the $6,900 would appear on Schedule 1 line 25. If the HSA contribution was included in box 1 but was not reported with code W in box 12 you would simply report the HSA contribution as a personal contribution and receive the deduction on Schedule 1 line 25.
if you box 16 is incorrect, you need to get a corrected W-2 (a W-2c) from your employer. changing 16 without the employer filing a corrected form will cause problems with your California and possibly even federal filing because what they have and what you'll be reporting are different.
12b code W needs to be on line 12 otherwise it will not flow to form 8889 which is required
it doesn't need to be on line 14.
do not change any amounts from what's on W-2, if you do you will regret it when you start getting correspondence from the IRS and if you're due a refund, it being delayed.
box 3 and 5 - wages for social security and medicare purposes
box 1 box 3 ($60,000) less 12a - retirement contribution ($18,500) plus - 14 S corp health insurance ($12545) = taxable wages ($54,045)
box 16 talk to your employer.
if you are a 2% or more shareholder in the S-Corp make sure you properly enter this amount using the quickzoom feature on the K-1 input screen for health insurance - under "final / amended" . you are entitled to a deduction for this amount
it does not flow from box 14 but box 14 is where is supposed to be reported
It seems like several things could be wrong with that W-2. The difference of $3,450 between the amount in box 16 and the amount in box 1 seems wrong relative to code W amount (for a California resident).
What is the code in box 12a for the $18,500? I'm guessing that it's code D for an elective deferral to the S corp's 401(k).
Is the S corp owner a 2%-or-more shareholder in the S corp? I'm guessing Yes because the S corp health insurance amount has been included in box 1.
Does the $12,545 of S corp health insurance include the $6,900 HSA contribution?
dmertz - thank you for looking at this closer .
Box 12 D - $18500
correct - 2%-or-more shareholder in the S corp
Healthinsurance 2%-or-more shareholder is 12 545
HSA 2%-or-more shareholder is $6900 and not included in the 12545 .
The difference for Ca in Box 16 is beyond me since this should be the same as box 1.
How can I figure out what the correct number should be?
There was no other state income just in case someone asks .
The numbers are straight forward .
60,000 wages -
12d contribution 18500
HI 2%-or-more shareholder 12545
HSA 2%-or-more shareholder 6900
California does not allow excluding HSA contributions from income, so if the HSA contribution was excluded from the box 1 amount, the California wages should be $6,900 higher than box 1. The difference of $3,450 implies that your HSA contribution was only $3,450, the contribution limit for self-only HDHP coverage, not $6,900 for family HDHP coverage. I assume that you had family HDHP coverage. Although California might question it, the discrepancy in the box 16 amount doesn't really affect your California tax return because the box 16 amount is included on your California tax return for informational purposes only. The addition of your HSA contribution to federal income is done separately on your California tax return.
Please confirm that your HDHP coverage was family HDHP coverage, not self-only coverage.
The $6,900 should have been included in box 1 of the W-2 and the contribution is to be treated on the shareholder's individual tax return as a personal HSA contribution, If the contribution was made under a cafeteria plan under the S corp, the code W amount is probably correct, otherwise the $6,900 should probably have been shown as a box 14 item rather than in box 12.
See Q&A-3 of IRS Notice 2005-8: https://www.irs.gov/pub/irs-drop/n-05-08.pdf
It seems that the $6,900 was not properly included in box 1 of the W-2. Since the HSA contribution was not included in box 1 of your W-2, if you don't get a corrected W-2 you would have to report the contribution as if you were a less-than-2% shareholder by simply entering the W-2 as is and have it reported on Form 8889 as an employer contribution for which you receive no deduction on the individual tax return. If the contribution had been included in box 1 of the W-2 you would need to enter the W-2 as is (including the code W entry), indicate that you made a personal $6,900 contribution (in addition to TurboTax separately recognizing the code W amount), indicate to TurboTax that your employer told you about other contributions, then enter negative $6,900 as an amount not reported on the W-2. This caused the code W amount to be moved from an employer contribution on Form 8889 line 9 to a personal contribution on Form 8889 line 1 so that the $6,900 would appear on Schedule 1 line 25. If the HSA contribution was included in box 1 but was not reported with code W in box 12 you would simply report the HSA contribution as a personal contribution and receive the deduction on Schedule 1 line 25.
dmertz - yes you are correct it is a family HDHP coverage.
Thank you for being so detailed with your answer I do appreciate it very much.
The way I understand it we would have to file a W2c and update box 12 with no HSA entry (remove it) and enter the HSA in Box 14 (like the HI )
and also update amounts in Box 1 and Box 16 (increasing the current amounts)
Right now it it seems box 1 includes
60000 wages - 12d 18500 + HI MORE-than-2% shareholder = 54045
HSA 6900 does not seem to be included in box 1 currently.
Just to clarify since it is a MORE-than-2% shareholder contribution the HSA 6900 by the S-corp needs to be moved from 12b W-6900 to box 14 and treat it the same way as the HI in box 14 which is also added to box 1.
Currently it seems to be treated as a cafeteria plan which a Scorp MORE-than-2% shareholder can not participate in .
Next I would have to include it in box 1 .
By including you mean I would have to add it back in and add it to box 1- is this the correct understanding:
Is this calculation below what you mean by being included ?
$60000 (wage ) - 18500 (retirement) + HI 12545 + HSA 6900 = BOX 1 then being 60945
(box1) - box 12D + box 14 + box 14 = new updated amount including entries fier box 14 as wages to MORE-than-2% shareholder which then in return can be deducted on personal return?
and next correct box 16 on the W2 and make it 60945 as well .
if you box 16 is incorrect, you need to get a corrected W-2 (a W-2c) from your employer. changing 16 without the employer filing a corrected form will cause problems with your California and possibly even federal filing because what they have and what you'll be reporting are different.
I am single member S corp.
On W2 I have taken 70k as gross wage.
Out of this
22500 for solo 401k employee deferal shown on 12a D
7500 HSA from S corp shown as 12b W
2500 heath premium shown as 12c DD
So box 1 wage is 37500.
So does TurboTax will calculate how much employer Solo 401k contribution should be?
Is it 25% of 70k
Or
60k
Or
37500
Since you treat yourself as an employee, your contribution limit is $22,500 in 2023 or if you are 50 or over, the amount is $30,000. In addition, your business may make a match up to 25% of your compensation for the year to your plan. This would be 25% of $70,000. Compensation is defined as gross income according to IRS definitions.
Now let's determine what your maximum contribution limit is for 2023.
Turbo Tax will calculate what the total contribution amount should be and will warn you of the fact that an excess contribution has been made.
Contribution Limits to a one Participant 401K Plan
Thanks Dave for answer, its clear. Its for person less than 50 year old.
What should be reported on Line 17 of form 1120S in this case,
should it be $40000 or $17500?
If its $17500 and where does $22500 deduction get reported on 1120S?
You would enter $17,500 since this was a contribution made by the S-Corp to its employee.
Thanks. If I declare $17500 on line 17, then Where do I show the expense of $22500 which employer submitted for employee contribution. It is part of W2 Box 12a D, but line 1 wages of officer compensation are box 1 which is net of $22500.
So should line 1 officer compensation include box 3 wages?
Also is it fine to delcare HSA and health care premium contribution on line 18, employee benefit program?
Box 3 wages are the wages that were paid to the employee. They include the $22,500 that the employee paid for their 401K contributions. The wages in box 1 are what the employee pays taxes on, net of the contribution that they made to the 401k in box 12.
The only thing that should be put in box 18 are contributions made by the employer, not the contributions that the employee made that are in box 12 of the W2. The company can't deduct these things twice,
So does line 7 Compensation of officers (see instructions — attach Form 1125-E), have box 3 wages?
Yes. The compensation of officers is the gross wages that you paid so for that line you would enter the amount from box 3.