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Employees realize pre-tax savings from section 125 cafeteria plans. Hence the IRS classifies the HSA contributions that employees make through cafeteria plans as employer contributions - the amounts that must be reported in W-2 box 12 with code W. Employees cannot deduct the amounts in box 12-W as medical expenses or HSA contributions on their federal income tax returns.
Yes, HSA contribution reduce Box 1, 3 & 5.
I forgot to mention that you are correct about the taxability of HSA contribution for CA State too.
Employee contribution will also be shown to the IRS in Box 12 with code W.
State will also determine this amount from the W-2.
CA state wages will be higher by the HSA amount as compated to Federal wages.
Here is a link for your reference to detailed guidelines
Let me know if you have any question.
Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.
Technically HSA contributions through a 125 cafeteria plan (pre-tax) by salary reduction are treated as employer contributions -and hence- they are reported as employer contributions with code W.
You are correct on the amount as stated by you on the W-2.