Box 12 W - HSA Employer Contributions

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Overview

From past experience, W2 Box 12W appears to be one of the most commonly confused items because it is nonsensical.  People consider money deferred from their paychecks as “their” contributions to their HSA's.   

However, any amounts listed in Box 12W will reflect amounts for which an employee's taxable wages have already been reduced; saving the employee from taxes once already.  This tax savings was accomplished because technically the employee had actually elected to contribute to their HSA under an employer's Section 125 plan.

See IRS W2 Instructions: “Code W—Employer contributions to a Health Savings Account (HSA). Show any employer contributions (including amounts the employee elected to contribute using a section 125 (cafeteria) plan) to an HSA. See Health savings account (HSA)."
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Explained Another Way

- If the HSA contribution was excluded from the wages shown on the W2, then they were considered pretax deductions under an employer's S125 plan & the amount should be included in box 12W.  
- If an employee contributes to their HSA using after tax money, then the amount they contributed should not show up in box 12W.

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How to Check if Your HSA Contributions Were Deducted Pre-Tax

If you are looking at a paycheck, and the deduction says HSA Single or HSA Married it was almost certainly deducted pretax.  If the items is listed as a Direct Deposit Savings or Direct Deposit Checking, it likely was likely after tax.  To check the math, go back to that paycheck and you should see the the taxable wages listed in parenthesis next to your Medicare tax for the paycheck.  This amount in parenthesis is the wage total used to calculate your taxes for this paycheck (taxable wages).  Looking at this taxable wage figure on the check; you should be able to work out which deductions on your paycheck were deducted from the earnings on your paycheck pretax.

Using this sample check: current earnings = 2537.50 + pretax health 42.50 = 2495.00 taxable wages.  1.45% x $2495 = $36.18

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Why Do After-Tax HSA

If an employee had an individual health plan or coverage through a spouse's employer, but wanted to contribute funds from their pay into an HSA account.  They would set up a direct deposit into the account just like a traditional checking direct deposit.  However, because the employee is not covered under the employer's health plan and/or Section 125 plan the employee wouldn't be allowed to defer from their wages pretax as it wouldn't be permissible.

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Additional Examples

Still not certain?  Do you wish to search the internet for something to support you cause? Here are my favorites to showcase:
" jcastro: Perhaps the easiest way to understand Box 12 is that it prevents double dipping. Your contribution was pre-tax, so your contribution goes in Box 12 to keep you from getting another break. Your employer's contribution was not taxable to you, so it also goes in box 12, to, again, keep you from getting another break on the same money.
You paid no taxes on either category of contributions. So you don't get another break. That's the purpose of box 12."

"The idea is, if you already paid no tax because the contributions (yours and your employer's) were excluded from your Box 1 wages, then no further deduction is shown on Form 1040. However if you paid directly into the HSA (not through your employer) and did not exceed the maximum allowed from all contribution sources, then you get an adjustment (deduction) on Page 1 of Form 1040."

Your payroll deductions for the HSA account will be shown on your W-2 in Box 12, marked code “W”. Because your payroll deductions were taken pre-tax, they are considered “employer contributions” and are to be entered on line 9 of form 8889. Do not enter UCAR payroll deducted contributions on line 2. Since payroll deductions for the HSA were taken pre-tax, you will not be able to claim a deduction on line 13.”

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