HSA entry increases tax

[coco05]

In turbtax why is my taxes owed increasing when I enter box 12 on my w2?  Here are some of the details:

1. your HDHP coverage (Family or Self)- Self

2. your spouse's HDHP coverage - None he has traditional health insurance

3. your code W amount on the W-2 $3550

4. your spouse's code W on the W-2 none

5. your direct contributions to the HSA (not through the employer) $0

6. your spouse's contributions to the HSA (not through the employer) $0

7. any carryover of excess contribution from 2017 for either of you $0

[KathrynG3]

If your husband is listed first in the tax return, he will be considered the taxpayer and you will be considered the spouse. This may affect your responses as shown.

The second component to the HSA is reporting any distributions form the HSA and identifying whether the distributions were for qualified medical expenses. This is done from entering Form 1099-SA details. Be sure to follow through the whole interview to report the details. 

To do this in TurboTax, enter HSA in the search box and select the Jump to link in the search results. 

For more information, see: Why is my HSA distribution taxable?

[coco05]

I'm not sure how who is listed first will impact this.  I'm simply entering it on my W2 and it is increases my taxes dues by quite a bit.  The code given to me by the w2 is 12W "employer contributions to HSA".  Is the program seeing this as income even though most of it was deducted from my salary?

Can you help me understand?

[BillM223]

@coco05

The way it works is this:

HSA contributions made by your employer or by you by means of payroll deduction are reported in box 12 of your W-2 with a code of W.

The amount is also removed from Wages in boxes 1, 3, and 5 before the W-2 is printed. This is the benefit of contributions made through your employer - the amount is never in your income in the first place, and your don't pay federal income taxes, Social Security taxes, nor Medicare taxes on this amount.

However, the IRS considers HSA contributions to be taxable until you show that you have proper HDHP coverage.

So, at the time you enter the W-2, the code W amount is added back to income (line 8 on Schedule 1 (1040) if you want to go look), until such time as you finish the HSA interview and show that you had HDHP coverage.

At that point, then, the code W amount is removed from line 8 of Schedule 1 (1040), and your taxes go back down.

This is one of many reasons why it is not a good idea to watch the Refund Meter too closely - there are things happening in the background asynchronously to what you are entering, but it will all come out good in the end.