What does Box 12 code "w" on my w2 mean? And why am I losing money on both my state and federal return when I enter in the amount paid?

[r_0530]

This does not fix the issue. 

I've restarted my return so many times. I've deleted forms etc.

I've also made sure that i answered those HSA interview questions correctly - I do have a high deductible plan, i did not overfund, and I used everything for medical expenses only but it still reduced my return to a negative number. This is extremely frustrating. Help!

[ThomasM125]

@r-0530 I suggest you contact a tax professional at TurboTax and do a screen share so the agent can see what is wrong with your entries. Here is a link you can use to contact us:

https://ttlc.intuit.com/community/using-turbotax/help/what-is-the-turbotax-phone-number/00/25632

[icnewer]

Same issue here and seems I missed this reduction which I over-paid tax unnecessary for 2020 return. Is it possible for me to file a correction of 1040 filing on this?

[MayaD]

Yes. You can amend your return to make the correction.

When amending your return, your refund changes to $0. This is normal for amended returns. 

Please follow the instructions in the link below for more information:

How to amend (change or correct) a return you've already filed

[icnewer]

Still confusion here: we all agreed HSA contribution should be tax free, however, all you tax experts said form 12c (code: W) item should be in the line 9 of form 8889, even though this is contribution by employee through payroll deductible (in fact TT will auto place it into line 9 after we auto-import W-2 form into TT),  then on line 12, you will get a very small number as you will substract line 11 from line 8 (which is fixed 7100 as a family HDHP plan), for my case it's only $75.  So even I copy this HSA contribution (for my case it's $7025) into line 2 of 8889, in line 13 I will only get $75 as a final HSA deduction. It actually means that only $75 out of total HSA contribution of $7025 is tax-free, which is NOT correct as we agreed HSA contribution should be tax-free... 

Any idea to fix this? Help please. @ErnieS0 @MayaD @ThomasM125 

[BillM223]

"It actually means that only $75 out of total HSA contribution of $7025 is tax-free"

This statement is not true. When your W-2 was printed the code W amount in box 12 of the W-2 was removed from Wages in boxes 1,3, and 5 BEFORE the W-2 was printed. That is, your actual income was HIGHER than what was listed in boxes 1, 3, and 5. 

But, as you see, your original (actual) income (Wages plus the box 12 amount) is not on your return, only your original income net of the box 12 amount. That is your tax benefit - your contribution as listed with code W in box 12 of your W-2 is never in your income - so this does not have to be listed in box 13 on the 8889.

P.S. box 13 will not have an entry in your case unless you also made direct contributions to your HSA. For taxpayers who make contributions to their HSA only through their employer, this box should be zero because box 2 is zero...

So did you duplicate your entries: once as part of box 12 and again as a direct contribution? You should not enter any part of the amount in box 12 with a code of W anywhere else in TurboTax, like on the screen that asks if you made direct contributions to the HSA...

@icnewer

[icnewer]

@BillM223 thanks for the detail answers, it sounds right however you can see previously posted from someone that when we put HSA $ into line 12 of form 8889, it reduced the tax refund.  How could that happen IF again HSA contribution should be tax free?  I recalled I was under this issue as is but I can't verify it now for 2020 but I will pay attention on coming 2021 filing.

"I've also made sure that i answered those HSA interview questions correctly - I do have a high deductible plan, i did not overfund, and I used everything for medical expenses only but it still reduced my return to a negative number." 

[Mike9241]

box 12 is your HSA contributions made through your employer. it includes both any voluntary contributions by your employer and any taken out of your pay. the amount is automatically carried to form 8889. you do not enter the amount in form 8889 otherwise the amount will be doubled.

[BillM223]

"you can see previously posted from someone that when we put HSA $ into line 12 of form 8889"

When I look, you are the only person who posted something about line 12 (1/5/22 and 1/3/22), so please point out the person and the date so I can find it.

Line 12, however, is not that interesting. What it represents is the maximum amount the line 13 value (your deductible direct HSA contributions) can be. It does this generally by calculating what your annual HSA contribution limit is, and subtracting  any direct contributions that you reported, any "employer" contributions (i.e., contributions from your employer and from you by means of payroll deduction), and any qualified HSA funding distributions (from an IRA). 

Your deductible HSA contribution (line 13 of Schedule 1 (1040)) is the lesser of line 13 (the calculated max) and line 2 (what you actually contributed directly to the HSA).

Because line 12 is calculated by TurboTax, I don't know what you mean by "when we put HSA $ into line 12".

"it still reduced my return to a negative number."

A common way that this could happen:

When you enter your W-2, the moment you enter the entry for code W in box 12, your refund drops or your tax increases. Why? Because the IRS does not recognize the deductibility of HSA contributions until you have shown that you had valid HDHP coverage. Since you don't do this until the HSA interview, from the time that you enter the W-2 to the time you answer the HDHP coverage questions in the HSA interview, your refund will be artificially small or your tax artificially high. Once you enter your HDHP coverage, TurboTax will correct things and your refund or tax due will be set right.

NOTE: this is why we encourage taxpayers not to follow the Refund Meter too closely, because things are happening in the background that you don't understand, but it all works out in the end.

If you meant something else, I would need to have some more information about your HSA, like your HDHP plan, number of months, code W value on your W-2 (if any), all direct contributions to your HSA and so on.

Please be assured that properly entered, HSA contribution are "deductible" even if the way they are deductible is not obvious. ***Note, the proper term for the code W amount is that it is "excluded" from income. Exclusions don't show up as deductions on your return even the effect on your tax due or refund is the same.

[cj7353]

This issue threw me, too, and the comments above to complete the interview questions were very helpful.  Here's some additional info from my experience -- after I'd answered the interview questions about contribution amount, I was still being penalized instead of benefited by the HSA contribution and was puzzled.  It wasn't until I answered the question about having a high-deductible medical plan for the whole year that it flipped and my tax owed dropped down suddenly.  This makes sense, since we have to have an HDHP to get the deduction, but it sure was confusing and non-obvious.

[ErnieS0]

Yes you are correct about having to complete the questions about having a high-deductible medical plan @cj7353.

To be an eligible individual and qualify for an HSA contribution, you must meet the following requirements.

• You are covered under a high deductible health plan (HDHP), described later, on the first day of the month.

• You have no other health coverage except what is permitted under Other health coverage, later.

• You aren’t enrolled in Medicare.

• You can’t be claimed as a dependent on someone else’s 2021 tax return.

If you do not tell TurboTax that you met the qualifications, TurboTax will assume you were not qualified and add your pre-tax deductions back into income.

Learn more at Publication 969 (2021), Health Savings Accounts and Other Tax-Favored Health Plans

[POM-Miche]

I'm thinking that what's going on here for everyone is that you have entered your contributions, but you need to also enter the distributions from those contributions which were used for medical expenses during the year. If And portion of the pre-taxed HSA contributions that are not used to pay your actual medical expenses during the year and/or by the tax return due date revert back to the taxable wages classification.

Also for future reference, as others have said, these employer/employee type contributions will not show up as part of your wages on your W-2, but if you look at your final, full detail payroll check stub/summary sheet, you will see the higher full wage amount that includes your HSA contributions amount; as well as, the actual taxable wages amount that carries over to the W-2, boxes 1, 3, and 5.

[BillM223]

"I'm thinking that what's going on here for everyone is that you have entered your contributions, but you need to also enter the distributions from those contributions which were used for medical expenses during the year. If And portion of the pre-taxed HSA contributions that are not used to pay your actual medical expenses during the year and/or by the tax return due date revert back to the taxable wages classification."

That's not how it works. Distributions have no effect on the tax benefits of contributions.

First, to make it clear. An HSA is not like an FSA where you have to spend all your contributions each year or lose them. Rather, the HSA is more like an IRA in that the trust account is persistent. If you contribute 5 years in a row to the HSA but never spend any of it, then that 5 years' worth of contributions is still in your HSA plus any earnings these dollars have made.

Second, it IS true that if you spend money from the HSA for reasons other than qualified medical expenses, then this amount will be added to taxable income on line 8 on Schedule 1 (1040), and, in addition, you will be penalized 20% of the distribution for violating the rules of the program.

As for the final payroll detail showing Wages both before and after the HSA deduction, this is not mandated (the layout, that is) by the IRS, but it would not surprise me if a lot of companies (especially ones that use the same payroll processor) would do this.

@POM-Miche