Why does the turbo tax software not properly deduct from income employee contributions to an hsa reported on a w2 under code W ?

[mchale85]

i disagree.  in my case, my employer contributed $0 to my HSA and I contributed $1,000.    My W2 box # 1 and box #3 do not reflect this $1,000 difference, meaning I already paid federal tax on the the $1,000.  Why can't the turbo tax software simply ask how much of the amount coded as W in Box 12 was by the employer and also by the employee?   In this way the employee amount could be excluded on the 1040 from taxable income through the turbo tax interview process.  The only work around I can find is to manually go into form 8889-T, part I, Line 2 and directly and enter the $1,000 !!  Wouldn't make more sense for the turbo tax interview process to feed this form directly by the method I noted above?   please let know.  and thank you.  

[BMcCalpin]

If your employer completed your W-2 correctly, both the employer's contribution and your contribution made through payroll deduction should have been removed from boxes 1, 3, and 5 on the W-2. And since it is removed from all three boxes, you can't tell from looking at the W-2 if your employer did this - you have to ask them.

Note that it does not matter which part of the code W amount is the employer amount and which part is the employee amount - they are treated exactly the same by the IRS. If the employer does the W-2 correctly (and like I said, you have to ask them because you can't tell by looking at the W-2), the employee contribution that is part of the code W amount is handled correctly.

[BMcCalpin · Accepted solution]

TurboTax is working correctly. Please bear with me, because this requires some explanation.

It is counter-intuitive, but the "employer contribution" is the sum of what your employer contributes to your HSA and what you contribute through your payroll deduction. The "employer contribution" is what appears with a code of W in box 12 on your W-2.

OK so far?

There is no deduction on the tax return for any part of the "employer contribution". Why? Because before your W-2 is printed, the "employer contribution" is removed from Wages in boxes 1, 3, and 5 on the W-2.

Yes, there is no apparent deduction on your tax return for the code W amount because it was never in your income in the first place.

Example: You show $40,000 as Wages in boxes 1, 3, and 5. You also have a code W amount of $2,000. On the books of your employer, your actual compensation is $42,000, but you have to report and pay tax on only $40,000 of it.

This is true of a number of items reported in box 12. For example, if you have a code DD amount, this is the sum of what your employer AND you pay towards your health insurance premiums. This is considered "pre-tax" so it is not shown in Wages in box 1, either.