HSA on W-2 code W Question

[ljwalters]

First, the Code W in Box 12 of the W-2 indicates the amount of contribution to HSA from employer.

This amount is supposed to be nontaxable.

Why then is box 1 (wages) not lowered by the amount of the contribution?

I.e. Wages same as SS Wages.

Then Ca. Wages are increased by amount of HSA contributions (increasing taxable amount to state)

Can anyone explain this to me?

[Jack from Ohio]

Code W indicates the amount of HSA contributions from the employer and/or the employee as paycheck withholdings that are already pretaxed. Code W does not affect boxes 1,3 or 5 in any way. It is only information for form 8889.

If the taxpayer makes additional contributions with after tax money, then there is a deduction on the 8889 which flows to the front of the 1040.

CA is greedy.

[ljwalters]

The W-2 sendes the amount to the 8889 as emplyer contributions and does not end up on line 25 of 1040. So what am I doing wrong. and if it can be after tax contribution why does it increase the amount of wages for the state that does not conform to the deduction?

[Gail in Virginia]

If it is withheld by the employer, and therefore not included in taxable wages, the taxpayer cannot deduct it again on the front of his 1040. It flows to the 8889 to limit the amount of additional contributions that the employee could make on his own outside of payroll deduction. The amount that is code W on the W-2 is "pre-tax" and therefore if CA does not conform it increases the amount of the state wages.

[ljwalters]

Gailtaxed, It was not deducted from taxable wages.

[mcb39]

Gailtaxed, It was not deducted from taxable wages.

It is a pre-tax deduction.

[Jack from Ohio]

Gailtaxed, It was not deducted from taxable wages.

If any of it was taken from the employee's paycheck, it is pretax and will not show on line 1,3 or 5. Exactly the same method as employee healthcare premiums.

If it is all from the employer, it is also pretax and is not considered income to the employee in any manner.

Get the employee's final pay stub and you will see. Depending upon the payroll company, the information may also be on the employee's copy of the W-2.

[jainen]

>>Wages same as SS Wages.... Ca. Wages are increased<<

California does not conform to HSA's. That means employEE contributions are not deducted (Form 1040 line 25) and employER contributions are not excluded (W-2 Box 1). That is why California wages are higher than federal and Social Security wages. For the same reason, medical bills paid with HSA funds are still deductible for California, and taxable HSA distributions are tax-free for California.

As you noticed, Code W amount was also excluded from FICA so Boxes 1, 3, and 5 are the same.. Pub 969 says, "Amounts you contribute to your employees' HSAs are generally not subject to employment taxes."

[Maribeth]

Sometimes, well most times, I am so glad that Washington State does not have an income tax!

[ljwalters]

Now I get it it is treated like a benifit. Now for the kicker. The HSA company says the employer contributed one amount and employee contributed additional. HR at company has different amounts but the W-2 code W has a third amount. Should I just take the amount of total contribution and deduct the amount on w-2 code W and put the rest as employee contribution?

I have never had any trouble with this form before.