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RD
RD, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 8784
Experience:  CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..
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Health Savings Account (HSA) contributions are exempt from

Resolved Question:

Health Savings Account (HSA) contributions are exempt from FIT, Social Security Tax, and Medicare, but taxable at the California State Income Tax and CA SDI/SUI. How do I properly record the contributions on Form W2? Moreover, HSA contribtutions reduce Box 1, 3 & 5, but do not recuce box 14 (CA SDI) and Box 15 (CA SIT)... what about box 12 code W, should I report only Employer HSA Contributions, or do employee HSA contributions get indicated in code W also (or is there somewhere else I should report employee HSA contributions?
Submitted: 5 years ago.
Category: Tax
Expert:  RD replied 5 years ago.

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.

 

 

Expert:  RD replied 5 years ago.

I forgot to mention that you are correct about the taxability of HSA contribution for CA State too.

Customer: replied 5 years ago.
Now that hard follow-up, what about CA State Tax, the California Employement Development Department informed me that HSA is not exempt from CA State Income Tax or CA SDI/SUI. So if box 16 (State Income Tax Wages, Tips, etc.) does not get reduced by HSA contributions, how do I show the employee contributions to the IRS? Moreover, does Box 12 code W only show employer contributions or is this case, does the State want to see the employee HSA contributions on form W2?
Expert:  RD replied 5 years ago.

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

 

http://158.96.229.240/taxrep/de44.pdf

 

 

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.

Customer: replied 5 years ago.
Okay, just to make sure I got this correct, lets look at the following example:

Joan Smith
Gross Earnings: 10,000.00
Cafe 125 deductions: 500.00
HSA Employee Contributions: 250.00
HSA Employer Contributions: 100.00

W2:
Box 1: 9250.00
Box 3: 9250.00
Box 5: 9250.00
Box 16 (state Wages, tips, ext.): 9500.00
Box 12, code W: 350.00

How will the state reconcile the difference between Box 1, 3, 5 against Box 16?
Expert:  RD replied 5 years ago.

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.

 

 

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.

RD, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 8784
Experience: CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..
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