W2 Box 12 Code W

[geshleman]

My wifes W2 box 12 code 2 insists her employer made contributions to her HSA, however, she herself made the only contributions and now Turbo tax is telling us she over funded the account.

Is the W2 incorrect or is turbo tax incorrect. We did not encounter this problem last year with the same code in box 12

[geshleman]

That should be code W in the message, not 2

[BillM223]

I will append this standard answer that I have developed over the years, because accidentally indicating that you have an excess is a common occurrence. If one of these does not describe your situation come back and talk to us:

In your case, my bet is the second item below, that she accidentally double-entered here HSA contributions.

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

As you probably know, the maximum limits in 2025 are:

• $4,300 - individual with self-coverage
• $8,550 - 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, causing 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.

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 2025?".

Fourth, if you had a carryover of excess contributions from 2024, then this carryover is applied to 2025 as a reduction to the 2025 HSA contribution limit, which could cause an excess condition in 2025 as well. But note: if you had an excess contribution in 2024 but cured it by withdrawing the excess in early 2025, then do NOT report an "overfunding" on your 2025 return.

Fifth, the Family limit ($8,550) is for the aggregate of contributions by both taxpayers, even if both taxpayers have their own HSAs. That is, one taxpayer can’t contribute $8,550 to his/her HSA and the other contribute $4,300 to the other HSA – the $8,550 limit applies to the aggregate of all HSA contributions credited to the family (in this case, the excess contributions would be $4,300).

[geshleman]

I understand there is a limit, but turbo tax is reading it as an employer contribution and it is not. It is an employee only contribution and that makes it income instead of a deduction. How can I get past this?

[BillM223]

This is a matter of IRS terminology, which we have to follow.

The reason that the code W amount is called "employer" contributions, is because whether the source of the contributions was from the employer or from payroll deduction by the employee, it is treated the same way.

That is, the code W amount is removed from Wages in boxes, 1, 3, and 5. This is how an HSA contribution (no matter who it is from) is a tax benefit - because it was never in your income at all.

So you see that code W contributions are not only not subject to federal income tax, but these code W contributions are not subject to Social Security taxes (box 3) nor Medicare taxes (box 5) .This is a clear benefit, because HSA contributions made directly to the HSA custodian (i.e., not through the employer) are subject to Social Security tax and Medicare tax,

Instead of "employer" contributions, just call it "A", and the direct HSA contributions as "B". Perhaps this will lessen your confusion.

I will repeat, whatever contributions dollars are in the code W amount MUST NOT be repeated in the personal contribution line. Don't worry, it's actually better for her this way, because she won't be double-dipping and won't have SS tax or Medicare tax on the code W amount.

[geshleman]

Ok I understand, thanks for your explanation.

[Opus 17]

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@geshleman wrote:

I understand there is a limit, but turbo tax is reading it as an employer contribution and it is not. It is an employee only contribution and that makes it income instead of a deduction. How can I get past this?

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By law, all payroll contributions are made by the employer.  What is happening here is, your wife agrees to a voluntary salary reduction (so she has less taxable income) and the employer contributes the money, plus any employer match.   That's how this type of plan works in the regulations.  

Later in the program, only enter direct contributions she made out of pocket and not via payroll.