Discussion:HSA Box 12 W

My client has box 12 "W" dollar amount of $2787 for a health saving account. The dollar amount is the employer contrubutions. He also a form 5498 Distribution from an HSA with a gross distribution of $861. what is the taxable amount. He used the $861 of qualfited medical expenses. what line on the 1040 and what dollar amount I filled in the 8889 form Also PA taxes on the HSA

Thanks

• Enter the "W" amount from the W-2 on the W-2 worksheet in box 12.

• Enter the 1099-SA amount and code on the 1099-SA worksheet and check the box that the total was used for medical expenses.

• On Form 8889, choose Self or Family Plan, enter the # of months your client was in the plan in 2006, and enter the annual deductible amount. (You will need to quickzoom to the HSA contribution worksheet from Form 8889.)

• On Form 5329, enter the HSA value at 12/31/06.

• ProSeries Pro will automatically calculate if anything is taxable. Employer contributions and the employee's pretax contributions are not deductible on the 1040 form. Code W on the W-2 form in box 12 includes employer and employee's pretax contributions.

I doubt that you'll need to do anything on the PA return, but I'm not sure, since I'm in Michigan and nothing needs to be done on the Michigan return.

HSA Worksheet

Would the only time an employee's contribution be added to box 12 is when there is a cafeteria plan? Otherwise just employer's contribution in box 12?

I have a situation, if I am interpreting this correctly, that I think is wrong.

Employee has a W-2 with $4,000 in box 12, code W. There is no cafeteria plan. Employee contributed $2,350 and employer contributed $1,650 (employee has very good split record of each employee/employer deposit)

Family plan with 11 months into the plan ($4,996 deductible)

Balance on 12/31/06 - $2120

All 1099-SA withdrawls used for qualified expenses

So...using the information above, the employee's line 25 deduction is limited to $996 (instead of their $2,350) and there is an $81 penalty on the amount of excess distribution ($1354) (Figured the excess amount as: Box 12 + employee contribution - deductible [$4,000+$2,350-$4,996=$1,354 excess])

I told my client that the amount in box 12 was wrong and should only include the employer's contribution. If the amount in box 12 was reduced to the employer's contribution, the line 25 deduction would be the employee's full contribution and the penalty is elimiated.

Am I missing something here? My client questioned his employer on this and they said everything is fine and should be left as is. Three other employees also questioned the employer. This is the employer's first year offering the HSA.

Thanks.

You've entered something wrong somewhere. Enter $4,000 under code W on the W-2 worksheet. Fill out 11 months, Family plan, and a deductible of $4,996 on Form 8889. Show zero for contributions on Form 8889. There should be no penalty, and Form 5329 doesn't need to be prepared. Remember, the amount on the W-2 form is for the employer contributions and for the employee's PRETAX contributions (which are not deductible, since they aren't taxable). Delete what you've entered for employee's contributions and go on to the next tax return.