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TL;DR: my W-2 indicates that my HSA contribution for 2015 is $4137. I had my bank move the 2015 excess contribution ($787) to 2016's contributions. Is it OK to change the value reported on my taxes (W-2 box 12c) to reflect my actual 2015 contributions, which differs from what my employer thinks I contributed?

In the 2015 tax year I over-contributed $787 to my HSA ($2310 from me, $1826.85 from my employer), so I called the bank and asked what my options were. I was told that the $787 in excess contributions for 2015 could be withdrawn and contributed against the 2016 tax year and that as long as I didn't (don't) have excess contributions in 2016 I shouldn't need to worry about claiming any excess contributions for either tax year. Seems legit.

So far, so good - my first HSA account statement in 2016 shows a withdrawal of $787 (labeled "HSA EXCESS CONTRIB RETURN PY") and a deposit of $787 (labeled "HSA CONTRIBUTION") both on 1/15/2016, exactly as I might have expected. Now that I'm in the middle of doing taxes, it doesn't seem so cut-and-dry. My W-2 shows (in box 12c, code W) $4137 for my HSA contributions. Technically this isn't correct, I only contributed $3349 to my HSA for tax year 2015.

My inclination is to change the $4137 from box 12c to $3349, but I'm not sure if this is the appropriate way to make the adjustment or not, and I certainly don't want the IRS to think I'm lying to them. H&R Block's web application (which I'm using to file my taxes) appropriates the excess $787 from this box as "other" income, but, as I understand, the money is not taxable income it's an HSA contribution for 2016. The application calculates my taxable income (and thus my tax due) including this $787, which is not correct.

Will I face issues with the IRS if I adjust the amount reported in box 12c on my W-2 from $4137 to $3349 on my tax form or, if so, what should be done to fix the issue so that the $787 is not included in my taxable income?

I assume that were I to reduce the amount on my 2015 W-2 box 12c by $787, I'd need to add that to the amount on my 2016 W-2, is this assumption correct?

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  • Is any of the $4137 included in your Box 1 income? – Ben Miller - Reinstate Monica Feb 25 '16 at 14:38
  • @BenMiller Payroll tells me that none of my contributions to the HSA are included in box 1, but that they are included in box 3. They also tell me that (they think) I shouldn't have to pay taxes on the amount I moved from 2015 HSA contributions to 2016 contributions because it's not regular income it's an HSA contribution for 2016. – jbowman Feb 25 '16 at 18:02
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    @jbowman - "they" are wrong that you don't have to pay taxes (for 2015) on the money you moved. You can't reduce your 2015 income by making a contribution to your 2016 HSA. They are sort of correct in the sense that you won't pay tax on that amount in 2016. – TTT Feb 25 '16 at 18:52
  • @TTT Of course I won't pay tax on that amount in 2016 if I do in 2015, that would be asinine. The ultimate question I had was do I have to pay taxes on the amount at all but you've cleared that much up for me already. – jbowman Feb 25 '16 at 19:27
  • Hehe- yeah, that would be asinine. :D – TTT Feb 25 '16 at 20:19
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You can't change the W2, the employer issues it and sends it to the IRS. You cannot affect it in any way.

The employer reported correctly. You did contribute $4137 in 2015. You then withdrew the excess in 2016, and did it timely, so it is not taxable in 2016. However, the excess contribution should be added back to your wages on your tax return.

The way to do it is to add it to the taxable wages amount (reported on W2 box 1), and attach a statement explaining that the amount added is the excess contribution. You then put the corrected amount in the right place on your tax return (line 7 on the form 1040). Adding the difference to misc income (line 21) is OK too, it's the same effect.

You will then need to check with your payroll that they're aware that the excess was deposited back on the account of the next year and adjust their reports accordingly. Otherwise you'll end up with excess contribution again.

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  • So apparently I'm liable for taxes on the $787 even though I will never see it as regular income - I'm not paying my rent, etc with it; it will never touch my regular bank account - I'll be using it to pay for qualified medical expenses. If this is the case then why wouldn't the bank have instructed me to withdrawal and pocket the money to be used as normal income? I don't suppose you can point me to the IRS rules covering this situation? – jbowman Feb 25 '16 at 18:01
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    @jbowman - yes, you are liable to pay tax on the $787. Suppose the mistake was not made, then you wouldn't even be asking that. I think you're confused by the fact that when you put that money back into the HSA it's for 2016 tax year, and has so no effect on the 2015 taxes. Another way of thinking about it is: you already have reduced your taxable income for 2016 by $787, even though you haven't used any of your 2016 income to pay for it. So the tax you pay on that $787 for last year you will save this year. It's probably a wash unless you are in a different tax bracket this year. – TTT Feb 25 '16 at 18:48
  • @TTT Good point that if the excess contribution had not been made in the first place it would have been regular income for me and the point would be moot - this is enough to convince me that I'm liable for taxes on the amount: technically, it's 2015 regular income that I used to contribute to an HSA in 2016. That said, I'm not sure how/why the amount will be deducted from my 2016 taxable income. From what I was told payroll will not include the $787 on my 2016 W-2. If I contributed money right now from my pocket (post-tax) to the HSA would I be able to deduct that from my 2016 income? – jbowman Feb 25 '16 at 19:10
  • @jbowman - Regarding the amount not appearing on your 2016 W2, that's why littleadv suggested you let them know about it so they don't go over again this year. Regarding your last statement- you are correct. If you directly contribute to your HSA outside of your employer, you can take that deduction on your tax return (assuming you don't go over the annual limit). – TTT Feb 25 '16 at 19:54
  • @TTT Gotcha, and thank you. The suggestion that I let payroll know about it was for no other reason than to preclude my employer from contributing excess again this year, correct? If this is the case, I'm in no danger of that - they won't over-contribute this year even with the extra $787. The reason for the excess in 2015 was that I was aggressively contributing from my wages to help pay for a surgery I had. – jbowman Feb 25 '16 at 20:00

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