Employer contribution to HSA

First, the 1099-SA has nothing to do with HSA contributions. The 1099-SA reports on how much you spent out of the HSA ("distributions"), presumably on qualified medical expenses.

Second, the screen with the title "Let's enter [name]'s HSA contributions" shows the "employer" contribution, but, as you have found, you cannot change it there. That is because it is the amount with code W in box 12 on your W-2. If you were to change it, you would change it on your W-2.

However, you would not change it on your W-2 unless you knew that the employer got it wrong, and then you would ask the employer for a corrected W-2.

Note that the "employer" contribution is the sum of what your employer contributed to your HSA PLUS what you contributed through payroll deduction. Please don't be confused that the payroll amount is a "personal" contribution - it's not, in the eyes of the IRS.

I do not know what to say about 2018 vs 2019 contributions since I can't see your W-2. Are you saying that the code W amount in box 12 on your W-2 is for 2018 and not 2019?

Thank you for answering my question.

Here are some numbers to clarify my question.

Employer contribution 2018: $700

Employer contribution 2020: $1000

2019 W2 box 12 code W: $6,999.76

1099 SA has no box numbers. Line 1 says: "gross Distribution...7,302.71"

In Turbo Tax, under "Let's enter...HSA contributions" for "2019 employer and payroll contributions" it shows $700. Nowhere I was asked to enter employer contributions or entered this number. I assumed it was copied from the 2018 return.

Why it is incorrect and how can I fix it? 

Thank you much. 

OK, let's ignore the 1099-SA. All it is saying is that you spent $7,302.71 on medical expenses (I hope they were all qualified medical expenses).

I am going to assume that you made a typo when you typed "it shows $700". Based on your code W entry on your W-2, it should have been $7,000.

Note that TurboTax rounds to the nearest dollar as soon as it get dollar amounts from you, so the "2019 W2 box 12 code W: $6,999.76" is actually $7,000.

This $7,000 is the total amount that your employer contributed to your HSA (if anything) PLUS whatever you contributed through payroll deduction (if anything).

When you entered your W-2, you entered your employer contribution (the amount in box 12 with a code of W).

Is it making more sense now?

You are right!

It is my bad entry (from the W2) that caused this problem. I could not have fixed it on my own. 

Thank you again.

I am delighted that you found it. HSAs are highly valuable to taxpayers because they are a far better deal than using Schedule A to deduct your medical expenses.

However, how they work is somewhat of a mystery to most taxpayers (and to some tax professionals) So I am glad that you have worked through this, to make any debugging easier next time.

Please come back if you have any additional questions!

so this means that 12d. - W - includes both employer and employee payroll contributions, say employer contributes $100, and you contribute $900. So this would have it as $1000 on W-2, and no matter what the number is here if you meet distribution condition - no federal tax for any portion of it, but California will tax you on entire amount of what you put in and and what employer gifted you? so in the end HSA is federal tax free, but California will still tax everything, since they didn't tax you on monthly payroll deductions presumably, right?

Yes, the federal does not tax it and California does not allow the deduction. In short, no HSA contribution is deductible in California, no matter where it came from.  

If California added back the code W amount, then this is correct.  If you also made "personal" - that is DIRECT (not through your employer)- contributions (which appear on Schedule 1, line 12 ), these would appear somewhere else on the CA return as an adjustment.

Key Point:

• Check your W-2 to see whether or not your CA state wages on your W-2 already have the HSA contributions added back in by your company. Some companies do this.

This, however, confounds TurboTax because it does the HSA addback automatically and has no way of knowing if the employer included it or not. If your employer includes the HSA contribution in state wages (i.e., state wages are higher than federal wages by the amount of the code W amount), then you will need to back out the TurboTax addback because it would double the impact on state wages.

You would do this by reading the following:

The current TurboTax software assumes that the California state wages reported in box 16 will not have the HSA contributions added back. But some employers do add the HSA contributions back to state wages reported on the W-2.

 

In this case, you can counteract the TurboTax automatic adjustment by going to the screen entitled "Here's the income that California handles differently" and looking at the bottom at the line "Other Adjustments to Income".

 

Click on Start and enter "Duplicate HSA add-back" for description and the amount of the HSA contributions as a Subtraction (so it will be subtracted from your state income). 

 

Keep notes of what you did and why in your tax file, in case the state of California ever writes to you wondering what this "Duplicate HSA add-back" is. 

Thank you so much. This is very helpful. I didn't realize software wasn't handling it properly, though seems to add a small functionality to compare federal and state reported wage could be easy and seeing if it equals to 12d - W. So I ended up paying taxes on my HSA to California twice. I guess I can always file an amendment once the original submission is processed.

Yes, your employer prints state wages in box 16 on your W-2, and the employer may or may not add back the HSA deduction to state wages.

But it turns out that this box 16 number - which is listed in form 540 on line 12 - is actually not used anywhere on the state return.

Instead, CA starts the real calculations with the federal amount (which has the HSA deductions removed) and so always adds the contributions back to state income. You can see this for yourself by following the form.

So despite what people (including me) have said in the past, don't worry about whether the state wages on the W-2 have the HSA contributions added back or not - it doesn't matter.

@yemser

Oh, this also means that you don't have to worry about amending your CA return, about this at least.

thank you, you guys and gals are very knowledgeable. Can I just confirm so that I have a correct understanding?

For me, box 16 is above federally reported wages by the amount of 12d - W HSA contribution. This means my employer already withheld taxes for California for base wage and included HSA in withholding

Say federal wage $100, HSA $10. Box 1 - $100, Box 12.d W - 10. Box 16 -$110

Did software add $110 and $10 = $120, or did it calculate based on just $110?

a). If it used $120, then I need to do a manual adjustment and adjust software from double taxing HSA

b). If it smartly used federal wage and 12.d W, then it calculated based on $110, and adding adjustment will cause me to underpay California Tax liability.

Which one? a or b?

"Did software add $110 and $10 = $120, or did it calculate based on just $110?"

Neither. Remember I said that the $110 in box 16 on the W-2 is ignored - it's on the 540 but it's not used.

Since the income from the federal return is $100, and the HSA contribution is $10, the $110 comes from adding the $10 HSA contribution to the $100 federal income. You see?

"a). If it used $120, then I need to do a manual adjustment and adjust software from double taxing HSA"

It is not using $120, for the reasons I gave above.

 "b). If it smartly used federal wage and 12.d W, then it calculated based on $110, and adding adjustment will cause me to underpay California Tax liability."

What adjustment? Did you make one? If you did, then your state income is wrong. 

In the case you describe (the simple case), don't make any adjustments and the CA state income will be correct. TurboTax will do it correctly automatically.

Make sense?

@yemser

makes sense. thank you.

CA WAGES BOX 16, W-2

WITH EMPLOYER CAFETERIA PLAN & HSA CONTRIBUTIONS BY EMPLOYER AND EMPLOYEE

- CA WAGES IN BOX 16 may be incorrect, as Box 16 may only included the EMPLOYEE HSA Contributions as an increase to Wages, but did NOT include the EMPLOYER HSA contributions. I have had the same issue for 3 years for the same Employer for some of my W-2's for 2020. Why?

Sit back, this one takes a little following the yellow brick road...

I am referring to an issue for 3 years from same Employer and ADP Paycheck/W2 reporting; 2018 to 2020.   WHY?

The EMPLOYER HSA contribution were NOT be added back to CA Wages, Box 16; only the EMPLOYEE HSA contributions are being added back to Wages, Box 16.

Without a detail of the Paycheck Stub, you may not realize this is occurring; as ALL EMPLOYER contributions to Medical, Dental, 401K and HSA are excluded from Gross Wages, and therefore Taxable Wages for US AND CA; per ADP Paychecks they are doing this correctly. When W-2's are issued; CA Wages may be incorrect. 

So, look at 2020 W2 -BOX 12 CODE W (HSA)

________________________________________

Confirm the total 2020 HSA amount in Box 12 Code W adds up to the EMPLOYER AND EMPLOYEE CONTRIBUTIONS FOR 2020, Confirm from Paycheck Stubs and your Client that this is Employer AND Employee contributions to an HSA under Employer Cafeteria Plan for current year amounts only. Why?

In 2018 W-2's for a particular Employer, ADP was NOT including Employer HSA contributions in Box 12 Code W for HSA's.

This made the CA Wages in Box 16 incorrect as you only knew about the Employee HSA Contribution amounts and the Employer HSA contributions were not added back to W2 Box 16, CA Wages. 

    However, the same dollar amount appeared in Box 12 Code W = the difference in US vs CA Wages (Box 1 vs Box 16). 

Then, in 2019 & 2020; although I had the Employer and/or ADP correct the Box 12 Code W HSA amounts to include both Employer AND Employee HSA contributions, the add back for CA Wages in Box 16 is STILL ONLY INCLUDING EMPLOYEE HSA CONTRIBUTIONS....Yikes

____________________________________________________________________________________________

So, if you know the W-2 Box 12 Code W HSA, includes both Employer and Employee amounts for that Tax Year. Then, make sure the increase to CA Wages Box 16 on W-2 has the SAME AMOUNT AS BOX 12 CODE W. 

LACERTE INPUT WILL NOT FIND THIS ERROR, YOU MUST MANUALLY ADJUST WAGES (A) ADJUSTMENT FOR CA (Screen 51- Modifications; Wages). 

________________________________________________________________________________________________

If an amount exists in Box 16 Wages for CA from the W-2 and you enter the CA if different Wage amount in Lacerte, (US Box 1 compared to CA Wages Box 16)  AND the difference between these two Wage amounts (US vs CA Wages) DOES NOT equal Box 12 Code W for HSA, then Lacerte will NOT pick up the amount from Box 12 Code W as the adjustment to Wage income for CA., nor the difference in the amounts. See below. 

So, again, the Issue is CA Add Back Amount in Wages (Box 16 of W2 is often incorrect). I have found this for ADP paychecks and W2's from 2018 to 2020 W-2s. 

At first ADP was NOT including the Employer Contributions to HSA in Box 12 Code W. Therefore, you did not have the Employer HSA contributions to check if CA Wages is adjusted correctly on W-2.

After 2018 W2's for this Employer, I have had ADP Payroll or the Employer using ADP Payroll report the

TOTAL HSA CONTRIBUTIONS=amounts paid by Employer AND Employee in Box 12 Code W. 

    Refer to IRS Instructions for this TOTAL HSA Contribution calculation and amount reported. 

So according to one person at ADP, the W2s were including the EMPLOYEE ONLY HSA Contribution as an Add Back to CA State Wages Box 16 as the US (Federal) HSA Contribution are part of a Cafeteria Plan, so they do not have to add this back to CA Wages. The argument by ADP being, if US Medical, Dental and 401k amounts from Cafeteria Plans are not reported under Gross Wages to Taxable Wages calculations, neither does the HSA Cafeteria amount for Employers have to be reported. YIKES!!!! Not correct, because if you do not tell us on W-2 what is the TOTAL HSA contributions for Employer AND Employee, how will we know the amount to add back to CA Wages or check that Box 16 CA State Wage amount is correct. 

If the amount in Box 12 Code W is HIGHER than the difference in US vs CA Wages( Box 1 vs Box 16 of W-2)  and ALL the HSA Contributions are for the current tax year, an incorrect Wage is ma(y be listed on W-2 for CA Wages and Lacerte is not picking up the correction.  (Again, The Box 16 CA Wages amount is missing the Employer HSA Contribution amount.)

The Issue I am mentioning below is from 2020 W-2 & HSA Contributions paid in same year as 2020 Wages were earned , for Box 12 Code W and CA Wages Box 16

________________________________________________________________________________________

If you look at an Employee paycheck stub by ADP, you may see 3 columns of data

____________________________________________________________________________

1. Before-Tax or Pretax Deductions = Medical Dental, 401k and HSA paid by EMPLOYEE;

           not in Taxable Wages

2. After Tax Deductions = any item paid by the EMPLOYEE; which is in Taxable Wages

3. Employer Paid Benefits = Cafeteria Plan amounts paid by EMPLOYER (only) for HSA, Medical, Dental &

       401K and a Symbol says ""Taxable Wages" although NONE of these are in Taxable Wages below nor on W-2's. Misleading.

THEN HAVE GROSS WAGES TO TAXABLE WAGES ON PAYCHECK STUB

___________________________________________________________________________

Gross Wages (does NOT include ANY Employer paid Cafeteria amounts for HSA, Medical, Dental, 401k)

These HSA contributions by Employer (part of the Cafeteria Plan amount) is NOT in Gross Wages To TAXABLE WAGES amounts for US Box 1 amounts, therefore the "Taxable Wages" Report Title on Paycheck Stub is misleading AND CA Wages are incorrect, due to omission of HSA Employer Contributions in Box 16 Wages.

As is usual with Payroll, Payroll Companies do NOT include Employer Cafeteria Plan amounts for Medical, Dental and 401K paid by the Employer in Gross Wages. Now - this includes HSA Employer Contributions too apparently....

THEREFORE the Taxable wages,  does not include the Employer  HSA contributions (Employer ONLY not Employee paid amounts)  This is okay for US but when W2 is generated, the EMPLOYER HSA CONTRIBUTION are NOT AN ADD BACK TO CA WAGES. Why is this a Problem....

HSA CONTRIBUTION - MANUAL ADJUSTMENT REQUIRED FOR LACERTE SOFTWARE

when you entered CA If Different Wage Amounts = Not when Leave CA If Different Blank

________________________________________________________________________________

Gross Wages (before Pre Tax Amounts) does NOT include Employer HSA Contributions.

EXAMPLE:

Say Employer Contributes to HSA - $1000;

    this is NOT included in Gross Wages, so Taxable Wages automatically excludes the amount. 

This is a Problem for CA, because the Employer paid $1000 to your HSA that is NEVER reported on ANY of the Wages, Box 1 or Box 16. 

See Example below. this $3700 can be hard to locate if you do not have a Paycheck Stub. Why? Because typically Cafeteria Plan amounts paid by an Employer (Medical, Dental and 401K) are NOT included in Gross Wages or Taxable Wages on a W2, only on paycheck stub details.

This specific Employer's contributions to a Cafeteria Plans include HSA contributions by the Employer on ADP Paychecks and W2 as follows:

EXAMPLE CONTINUED

_________________________

EMPLOYER Contributions to HSA - Cafeteria Plan          $1,000

(Left out of 2018 W2 Box 12 Code W on ADP 

W-S; finally included in 2019-2020 Box 12 W-2s)

EMPLOYEE Contributions to HSA - Cafeteria Plan         $2,700

                                                                                              __________

Total HSA Contributions   Box 12 Coded W                    $3,700    (Add back to CA Wages, Box 16)

IF W-2 BOX 1 AND BOX 16 ARE SAME AMOUNT; LACERTE PICKS UP AMOUNT IN BOX 12 CODE W; AS ADJ TO CA WAGES - GREAT IF BOX 12 CODE W IS CORRECT AMOUNT

_________________________________________________________________________________________________

If (using Lacerte Software) AND you do NOT have a different amount for State Wages versus Federal Wages, the $3700 in Box 12 Coded W is correctly picked up as a California Add Back to Wages Income. 

IF STATE WAGES, BOX 16 IS DIFFERENT FROM FEDERAL  WAGES AND YOU TYPE IN THE CA BOX 16 WAGES IN LACERTE (BUT THESE WAGES EXCLUDES THE $1000 ABOVE), THE SOFTWARE WILL not ADJUST THE HSA INCOME FOR DIFFERENCE IN BOX 12 TO US VS CA WAGES AMOUNTS IN CALIFORNIA WAGES CORRECTLY

______________________________________________________________________________________________

This Company is now correctly reports the HSA Contributions of $3700 in Box 12 Coded W. 

However, when the Company State Wages are calculated on ADP Paychecks, the $1,000 above is NOT added to State Wages and therefore is missing as an Adjustment to State Income of $1,000. 

ADP states since the Employer HSA Contribution is through a Cafeteria Plan, THEREFORE, the $1,000 is not an Add Back to State Wages.  YIKES!!!

SO IF SEE THE AMOUNT IN BOX 12 CODE W, IS More THAN THE INCREASE IN STATE WAGES, YOU HAVE TO MAKE A MANUAL ADJUSTMENT TO CA TAXABLE INCOME IN LACERTE

___________________________________________________________________________________________________

State Wages on W2            $84,200

Federal Wages on W2        $81,500

Difference                                                   $2700 

                                                                   ======

CA Return is NOT adjusted for the $1,000 Difference paid in amounts for HSA,  in Lacerte Software, WHEN US Wages Box 1 and CA Wages Box 16 are entered in Lacerte.  W-2 amount in Box 16 is incorrect.

So ONLY $2700 becomes an Adjustment to CA Income (Difference between US Wages Box 1 and CA Wages Box 16), even though Box 12 Coded W is $3,700. 

So if the California Wages if Different Amount was already entered in Lacerte (although W2 has incorrect amount in Box 16, should be higher by $3,700 not $2,700); you have to manually adjust wages for CA in Lacerte (Modifications Screen 51 = Wages (A) for the $1,000

Employer Contributions    $1000

Employee Contributions   $2700

Total Contributions                              $3700  Box 12 Coded W

US Wages  Box 1              $84,200

CA Wages Box 16            $81,500

                                                               $2,700 Difference in US vs CA Wages

Good Luck!

First, the amount in box 16 (State Wages) on the W-2 is not used on thee California tax return. This amount is printed in line 12 on form 540, and then never used again on form 540.

Instead, the CA return starts with the federal adjusted gross income (line 13 on the 540) and then makes additions and subtractions.

The "employer contribution" (the sum of what the employer contributed and what you contributed by payroll deduction) is shown with code W in box 12 on the W-2. On the CA return, this appears on form CA(540) on line 1, column C.

If you also made direct contributions to your HSA, not through your employer, then this appears on form CA(54) on line 12 (Section C).

NOTE: TurboTax does not know the difference between what your employer contributed and what you contributed through payroll deduction - this is all combined in the code W amount, and TurboTax has no way to know which is which.

Are you seeing something else than what I have just described?

I think the confusion for many is the term, "employer contribution." Mine contributed zero and I contributed the maximum. My entry under "2020 employer and payroll contribution" is the sum of my employer ($0) and my contribution ($8600-- yes an excess contribution due to the extra pay period in 2020).

All correct?

Thanks!

Box 12 of your W-2 reports combined HSA contributions - yours and your employer.

It is possible that one or the other pays $0.

I am doing my 2020 taxes a bit late since I usually receive a refund and thankfully I didn't need it right away.

I believe TurboTax 2020 (download - apparently I couldn't use Online - a bit odd considering it is still 2021) is calculating incorrectly that I have paid in an excess amount to my HSA of $6000 and I will have to pay 6% tax on the $6000.

Box 12c is W $7050, my box 1 is $99093.  If I paid an excess of $6000 - what does that mean I was only allowed to contribute about $1050?  I find that a bit hard to believe, especially since whenever we sign up for these things in Workday, it always tells us the maximum amount we can donate, if I recall correctly.   Also, I am over 55.

Anyway, I Reply because it seems you know a bit about HSA contributions.

I hope you can help me because I don't see any way to report this to TurboTax, if indeed I am correct.

It sounds like TurboTax has calculated your annual HSA contribution limit to be zero, based on your answers. You need to revisit the HSA interview, bearing in mind the following items.

One of the purposes of the HSA interview is to determine your annual HSA contribution limit.

As you probably know, the maximum limits in 2020 were:

• $3,550 - individual with self-coverage

• $7,100 - individual with family coverage

• If the HSA owner is 55 or older, then you add $1,000 to these amounts.

However, these limits assume that you were in an HSA all year. If you left the HSA during the year or started Medicare or had one of a number of change events, then the limit is reduced. 

There are several major culprits for excess contributions (other than just actually contributing more than the limit). 

First, if you did not complete the HSA interview - that is, go all the way until you are returned to the "Your Tax Breaks" page - the limit still might be set to zero, causes a misleading excess contribution message. 

There are questions all the way to the end of the interview that affect the annual contribution limit.

Second, it is not unusual for taxpayers to accidentally duplicate their contributions by mistakenly entering what they perceive to be "their" contributions into the second line on the "Let's enter your HSA contributions" screen (see screenshot below). 

Normally, any employee who made contributions to his/her HSA through a payroll deduction plan has the contributions included in the amount with code "W" in box 12 on the W-2. This is on the first line on this screen (above). Don't enter the code W amount anywhere on the return other than on the W-2 page.

Third, if you weren't in HDHP coverage all 12 months, then the annual contribution limit is reduced on a per month ratio. NOTE, this means that you have to indicate when and under what type of HDHP plan you had. Be sure to answer the questions on the screen entitled "Was [name] covered by a High Deductible Health Plan in 2021?" (see screenshot below).

Fourth, if you had a carryover of excess contributions from 2019, then this carryover is applied to 2020 as a reduction to the 2020 HSA contribution limit, which could cause an excess condition in 2020 as well. But note: if you had an excess contribution in 2019 but cured it by withdrawing the excess in early 2020, then do NOT report an "overfunding" on your 2020 return.

Fifth, the Family limit ($7,100 for 2020) is for the aggregate of contributions by both taxpayers, even if both taxpayers have their own HSAs. That is, one taxpayer can’t contribute $7,100 to his/her HSA and the other contribute $3,550 to the other HSA – the $7,100  limit applies to the aggregate of all HSA contributions credited to the family (in this case, the excess contributions would be $3,550).

@Iseem2BLosingWithTrboTx

What if I have 2 different W2s - one with company X and one with company Y. Turbo tax is only pulling the first one into the tool in the HSA section and not letting me enter in the second one. How can I add the tax-free contributions from my 2nd employer of the year in? 

TurboTax should automatically pull both employer's contributions into the Let's enter your HSA contributions screen. Are both employers' contributions on their respective W-2s have Code W in Box 12 with the contribution amount?

If you are married, make sure that both W-2s are in your name, not your spouse's. Also, make sure that after you enter the W-2, you answer No to Did any of your HSA contributions go into your spouse's account?

If neither of those are causing the problem, and the contributions still aren't feeding through to your HSA screens, you may need to delete the W-2 containing the contribution that did not go through and re-enter it. If you imported it the first time, you may need to type it in manually. Make sure Box 12 has Code W for your employer's HSA contributions. 

A problem occurs if you enter the information from Form 1099-SA (HSAs), the second item under Less Common Income, before you enter the information from Box 12W on a W-2. 

There may be similar issues with other miscellaneous income sections.  They apparently designed Turbotax anticipating that users would enter the information from all W-2s before entering other information related to employment.