Turbo Tax amount shown for HSA Tax Credit is zero

[atrengr]

So after completing the Medical section in the Deductions and Credit section for my federal return, TT is showing zero tax credit for HSA.  Previous tax year, 2018, TT calculated the HSA tax credit of $1000 after contributing ~$3500.  For tax year 2019 I contributed $6700 and TT calculated a tax credit of zero dollars. HSA distributions from both tax years roughly the same and taxable income from both years about the same.  I don't understand why I would receive zero tax credit with doubling the contributions.  I don't think tax laws changed from last year that would effect the amount of tax credit I would receive.

Does anyone have an explanation or have an idea what I might have done incorrectly? Just note I went through the TT all the way to the point of filing.

Thanks

[Hal_Al]

There is no tax credit for an HSA contribution.  Instead, there is an "Adjustment to income" (a deduction not subject to itemizing). It is the full amount of your contribution.  So, on line 25 of your 2018 Schedule 1, you should see the ~$3500 you contributed. That may have resulted in an approximate $1000 tax savings, depending on your overall tax situation. But, it was not a tax credit. 

For 2019, the HSA deduction shows on line 12 of Schedule 1 (there was a major form redesign for 2019). 

[BillM223 · Accepted solution]

HSA contributions that are made through your employer - whether the employer's contribution or your contribution by payroll deduction - is reported in box 12 on you W-2 with a code of W.

Most taxpayers are unaware that this code W amount is removed from Wages in Boxes 1, 3, and 5 before your W-2 is printed. The reason why you don't see a deduction for HSA contributions in this case is because the HSA contributions were never in your income in the first place.

You can also make direct HSA contributions to your HSA, that is, by not going through your employer. The direct contributions DO appear as a deduction on your tax return, on line 12 on Schedule 1 (1040).

Does this sound like your situation?

[atrengr]

Thanks for the reply.  sorry I didn't mean to say tax credit.  

So, what does it mean when you say there was a major form redesign for 2019?  How/why did this redesign effect my adjustment to income?  Keep in mind my tax situation from 2018 to 2019 is nearly the same.

Thanks again!

[BillM223]

I don't have any reason at this point to think that the form redesign had anything to do with what you are seeing.

You said that for 2019, you contributed $6,700. How was that contributed? Through your employer or directly to the HSA custodian?

Was the code W amount in box 12 on your W-2 $6,700, then, as I explained, you will not see a deduction on your tax return, because it was never in your Wages in the first place.

[atrengr]

Hi Bill,

Thanks for the reply. I think you answered my doubts. So all my contributions for 2019 were done through my employer and the amount shown in box 12c was already deducted from wages in box 1,3 and 5, thus reducing my taxable income right off the batt, right? So in 2018 I made a contribution outside my employer for $1000 thus the reason I see that adjustment in turbo tax (in 2018)  as compared to 2019 I didn't make an contribution outside my employer and no adjustment shown. 

Thanks for the great explanation.

[BillM223]

@atrengr

Believe me that you are not the first taxpayer puzzled by the way HSA contributions are handled in different years, and like you, it turns out that they made direct contributions one year and not the next.

As a bonus, please note that when you contribute to your HSA through your employer as I noted, the code W amount is removed from Wages in boxes 1, 3, and 5. 

This means that you not only do not pay federal income tax on the HSA contributions, you don't pay any Social Security taxes or Medicare taxes either.

You don't get this bonus when you make the contributions directly to the HSA (it's a deduction only from federal income tax).

For most people, the SS tax and the Medicare tax add up to 7.65% of your Wages, so that's saving you 7.65% of the amount of the HSA contributions!