HSA Tax Issues

[gryphont3]

I am having some issues figuring out my wife's HSA (with HSA bank). Specifically, I am wondering if we can deduct what HSA Bank calls "participant" contributions. We called HSA Bank, and the phone rep confirmed that she was the "participant." However, this contradicts what her employer told her - the company said that it would be contributing to the HSA on her behalf. Money showed up in the account, so it appears this is what happened, and we have not added any additional money ourselves.

However, on the "transaction history" section of their website, both of last year's contributions to her HSA (roughly $1000 each, total of $2000) show that they were made by "Participant," but the most recent one for 2016 shows that it was made by "Employer." This makes me think that there is some difference in how the contributions were characterized. Adding to the confusion, Box 12 on her W-2 is completely empty. Additionally, there were also no payroll deductions.

I assume that IRS Form 5498-SA will give me a more definitive answer, but unfortunately HSA Bank does not issue Form 5498-SA until May. What should I do in the meantime? Deduct the $2000 as a participant contribution, assume it was an employer contribution and not deduct it, or file an extension and wait until May for an answer?

I posted this over at Bogleheads but didn't get a satisfactory answer. Apologies for the double post for those of you who frequent both forums.

[jfoxcpacfp]

Did she not contribute anything via payroll withholding? If the company contributed all, you cannot deduct. Her Federal, SS, and Medicare wages should not include the $2,000 contributed by the company. I agree that box 12 should report contributions made on her behalf.

Since HSA contributions can be made up until the due date of filing the tax return, employers are not required to file until May.

Just curious - does she work for a very small employer? Sounds as if this information is not being reported consistently. You should ensure that they did not include the $2,000 contributions in her gross (taxable) income on the W2.

You can always file now and amend later if you find out your assumptions were incorrect. But - if she did not personally contribute to the HSA, you cannot deduct contributions.

[gryphont3]

She did not contribute anything via payroll withholding. I am not sure how I know if the $2000 contributed by the company is included in her Federal, SS, and Medicare wages. How can I confirm this? Those boxes (1, 3, and 5) are all the same number, if that helps.

She does work for a small employer. Is there any disadvantage that the contributions were not reported in Box 12? Do we owe more taxes, or could this screw up the HSA down the road?

Thanks.

[jfoxcpacfp]

gryphont3 wrote:

She did not contribute anything via payroll withholding. I am not sure how I know if the $2000 contributed by the company is included in her Federal, SS, and Medicare wages. How can I confirm this? Those boxes (1, 3, and 5) are all the same number, if that helps.

She does work for a small employer. Is there any disadvantage that the contributions were not reported in Box 12? Do we owe more taxes, or could this screw up the HSA down the road?

Thanks.

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Sounds like the owner may have been preparing the W2s to avoid getting ripped off by a CPA   I wouldn't worry about it messing up her HSA. The money is there and the 5498-SA and 1095-SA are what the IRS will go by. They might have to amend their W2s at some point, but it still shouldn't affect your wife. If she has her pay stubs, you should be able to compare them to the contribution dates and make sure they weren't added to gross wages. No reason you should owe more taxes, but if the contribution was somehow included in taxable income, you need to insist that it be corrected.

[gryphont3]

Thanks, I will review the pay stubs for those dates. Suppose we get the 5498-SA back in May and it shows, like both the website and phone rep suggested it would, zero for the Employer contribution. Can I deduct it then?

I guess I am concerned that there was some sort of after-tax garnishment of the wages (that may have been undocumented due to the lack of sophistication of her employer) that the employer then transferred into the HSA account. This would explain why both the HSA account and the tax form are screwed up in the same fashion - as if there was indeed no employer contribution.

[jfoxcpacfp]

Possibly, but I would have to know more. Wait until you know more before deciding upon the next steps. You've got plenty of time, stay cool. You might be surprised at how ofine this stuff is screwed up (in reporting). When you get your forms later, I'll be able to help more.

[gryphont3]

Update: We heard back from my wife's employer. They said:

"You have not contributed anything towards your HSA personally (employee contribution). [Company] contributed $2000 towards your HSA account in 2015. However, this money was not processed through your payroll, which is why it does not appear on your W2. When [Company] contributes as an employer towards an employee's HSA account, we process this payment by sending in a check to HSA Bank."

So it appears that it was an employer contribution, but it is not anywhere on my W-2. Does this seem right?

[jfoxcpacfp]

gryphont3 wrote:

Update: We heard back from my wife’s employer. They said:

“You have not contributed anything towards your HSA personally (employee contribution). [Company] contributed $2000 towards your HSA account in 2015. However, this money was not processed through your payroll, which is why it does not appear on your W2. When [Company] contributes as an employer towards an employee’s HSA account, we process this payment by sending in a check to HSA Bank.”

So it appears that it was an employer contribution, but it is not anywhere on my W-2. Does this seem right?

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No, that is not correct. The employer is supposed to report HSA contributions they have made on your behalf to the IRS with code W in box 12. As long as they do not include the contributions in any of your taxable income, you should be ok. That's why I recommended you check the pay stubs. Of course, the 5498-SA is what the IRS uses to match contributions to your HSA against box 12. If box 12 is blank, that would indicate that you made contributions outside of your employer plan that should be deducted on line 25 of page 1 of your 1040. I don't know what to tell you about filing Form 8889.

If the IRS is really on top of its game, you could receive a letter of inquiry. I doubt that will happen.

Just curious - was your wife's W2 handwritten?

[Katietsu]

I agree.  The employer needs a new accountant.  Whether the amount is going to the HSA either from the employer or as a pre tax deduction from the employee, it needs to be on the W-2.

[gryphont3]

Just curious – was your wife’s W2 handwritten?

No, it was typed. And we checked her pay stubs, it does not show any deduction for an HSA. What would the letter of inquiry mean? Is that the beginning of an audit?

[jfoxcpacfp]

gryphont3 wrote:

Just curious – was your wife’s W2 handwritten?

No, it was typed. And we checked her pay stubs, it does not show any deduction for an HSA. What would the letter of inquiry mean? Is that the beginning of an audit?

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I wanted you to check the pay stubs to make sure the HSA contributions were not added to taxable income. If they had been, they would have been detailed on the check.

A letter from the IRS typically has nothing to do with an audit. Usually, they just need more information about your return. Her employer may receive a letter. However, as I said earlier, the discrepancy will probably never be noticed.

If this is the only issue you have to be concerned about with the IRS, think you are over-concerned and should just let it go.

[gryphont3]

Wonderful. Thank you VERY much for your help.

[jfoxcpacfp]

You are very welcome - glad to help.