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)
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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
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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).
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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
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If you look at an Employee paycheck stub by ADP, you may see 3 columns of data
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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
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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
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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
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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
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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
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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
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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
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State Wages on W2 $84,200
Federal Wages on W2 $81,500
Difference $2700
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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!
