After finishing the interview about HSA contribution, how come tax goes down?

[gb1]

W2 has HSA amount with code W.  If this amount is not included in income, how come, after answering the questions about HDHP for all year, net tax goes down? It appears that TT added code W amount to taxable income, and deducts it only after the interview. Please advise. I wanted to understand where the disconnect is.

[AnnetteB6 · Accepted solution]

The process you observed is exactly what is happening in TurboTax as information is entered.  Entering information into your return regarding HSA contributions is a two-step process.  Each step is likely to cause the refund/balance due number to change because TurboTax constantly updates the calculations as you go through the return.  

The first step occurs when you enter your W-2 which includes contributions to the HSA.  After entering the information from your W-2, the amounts contributed to the HSA are included in your income (thus causing a higher balance due or lower refund).  

Then, the second step is to verify your eligibility to contribute to the HSA due to coverage under a High Deductible Health Plan.  This results in the HSA contribution being removed from your income since you were eligible to make the contributions.  Therefore the balance due amount will drop or the refund amount will increase.  

Some users may not see the change in your refund or balance due after completing the second step in the process, and they should revisit the HSA section of their return.  Pay close attention to any messages on the screen in case there is a situation where the contribution was not allowed.

There is no disconnect.  This is just the way TurboTax works with HSA contributions reported as part of a W-2.