The W code on the W-2 for the HSA includes both employer and employee contributions; can I ignore it and put correct breakdown amounts on form 8889?

[jpfazzari]

If I input the W-2 information directly to my client's account, then the amount in Box 12 coded with W will put the full amount on form 8889 as being just the employer's contribution even though most of it was the employee's deduction.

[Just-Lisa-Now- · Accepted solution]

No, you only input the W2, you don't enter that figure anywhere else.   

The employer paid it all IN, it doesn't matter if it was employer or employee contributions.

[TaxMonkey]

Just to add to Just Lisa's correct response.  The employee contribution has already reduced box 1 wages, and no further adjustment is required.

[hamphamp]

That is incorrect.  Taxable wages ARE not reduced by Code W withholding.

[hamphamp]

I disagree.  If it all is posted under the Code W the employee is not afforded the income reduction.  My customers tell me it is their contribution and is only withheld by the employer and forwarded to the Trustee for the employee

[TaxGuyBill]

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@hamphamp wrote:

I disagree.  If it all is posted under the Code W the employee is not afforded the income reduction.  My customers tell me it is their contribution and is only withheld by the employer and forwarded to the Trustee for the employee

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It is all required to be under Code W.  The employer should have already reduced Box 1 (and in most cases boxes 3 and 5) of the W-2 by the employee contribution.

[hamphamp]

Wrong the employer DID NOT reduce the taxable income

[qbteachmt]

If you read the General Instructions for W2, you see the box 12 info and the HSA info.

You also see when this would not be in boxes 1 and 3, because it was done through a cafeteria plan, and when it is considered taxable and would have been reported in boxes 1 and 3. Then, you use the 1040 info to know if there is any portion that would be excluded under these conditions of not a cafeteria plan, exceeding limits, etc.

There is no One Answer. There is only what Applies to that specific facts and circumstances for this employer, their "plan" or not, that employee, the amount, etc.

If there is both employer and employee amounts, they are treated as the one total. There is no separation; it was contributed by or on behalf of the employee.

[TaxGuyBill]

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@hamphamp wrote:

Wrong the employer DID NOT reduce the taxable income

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The employer SHOULD have reduced taxable income.  If the employer did not do that, the taxpayer needs to ask for a corrected W-2.

But that has nothing to do with code "W" in box 12.  That is correct.

[TaxGuyBill]

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@hamphamp wrote:

My customers tell me it is their contribution and is only withheld by the employer and forwarded to the Trustee for the employee

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Sorry, I missed that statement.  *IF* the employee is just telling the employer to deposit part of their check into a different bank account (the HSA), then you are right, that does not belong in Box 12.

However, that is an EXTREMELY RARE situation.  Why on earth would an employer not do the contribution "though" the employer for the tax-savings (for both the employee AND the employer)?  If the employer is actually doing it that way, you may want to give some tax-advice to the employer.   🙂

[qbteachmt]

Here's the issue:

@hamphamphas posted in a topic by @jpfazzari from Dec 2019. The answers given to @jpfazzari have nothing to do with the comment made by @hamphamp regarding "right or wrong" for income reduction in boxes 1,3 or whatever.

This is a Mix of two people's issues, which cannot be answered with one answer, as combined.

1. "Taxable wages ARE not reduced by Code W withholding." It isn't by definition withholding. And the employer might correctly be treating it as taxable.

2. "If it all is posted under the Code W the employee is not afforded the income reduction." Unless it already is excluded, which you realize by running the math for that W2. Or, it is all Employer share, so the employee never took the tax hit, anyway, as long as it is not Added to reportable wages. Or, it doesn't qualify until you work on that person's tax return, because the employer doesn't know if the amount is going to qualify or not, as you will learn when you read the W2 instructions for Box 12. For instance, the employee is not the person owning the HSA account, it belongs to the spouse, but had their employer fund it for the spouse's account deducted from the employee's Takehome pay, which makes it not affecting Boxes or taxes on the W2, since it is from Net, not Gross.

3. "My customers tell me it is their contribution and is only withheld by the employer and forwarded to the Trustee for the employee" Which might mean you simply need to prepare the 8889-T/S.

4. Or, it is from this employee's employer cafeteria plan, and the employee doesn't understand what is happening. Or, the employer doesn't do it right.

5. "Wrong the employer DID NOT reduce the taxable income" Have you confirmed this with the employer? Have you compared the employee's Gross of what they think they earn in a year, to the Gross as reported? For instance, someone earns $52,000 a year, and the W2 only reports $48,000 in all boxes that apply, and the Box 12 is $4,000. That means you "don't see it" reduced, because it simply wasn't reported at all. They don't get further tax reduction credit for a contribution to the HSA that already isn't included or reported.

It helps to start your own topic, when your conditions are different than the existing topic.