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  Nothing was withdrawn from my HSA.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.