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In 2015, I earned all of my income in Alabama, and I contributed $3,350 to an HSA. I filed my taxes through a free online tax filing service.

Later on, I made an effort to learn about income tax law in order to start doing my own taxes. I learned that HSA contributions are not tax deductible in my state and that I need to pay taxes on capital gains and dividends earned in my HSA. This leads me to believe that I will have to refile my 2015 Alabama income taxes.

My question arises with the values of my W-2. My "Wages, tips, etc" in Box 1 and "State Wages, tips, etc" Box 16 are equivalent. I would expect these boxes to be different to reflect the HSA contributions applied to federal but not state income, but it looks like HSA contributions are applied to both equally, even though they shouldn't be deducted from state wages.

Is this a case of incorrect W-2, or should I have known to report HSA contributions as income manually on my Alabama state income taxes? How do I report this income on my state income taxes?

  • Out of curiousity, is this you? – Joe Jan 31 '17 at 20:58
  • @BenMiller I notice in your linked question that your answer states: "Contributions that you deduct from your federal income need to be added back in to your income on your state return." Is this confirmation that the W-2 does not add contributions to your state income for you? – Ethan Jan 31 '17 at 21:15
  • Does Alabama have a state income tax website, similar to IL's, where you can file your taxes without software - just answering some questions? IL's takes your 1040 AGI (or something similar, I forget which line) and then prompts you for a list of things that you need to add back in. It might be worth looking to see how AL would have you do it in their own tax software. – Joe Jan 31 '17 at 21:31
  • Unfortunately, I don't know the details of whether or not your HSA contributions should have been included in your W-2 Box 16. – Ben Miller Jan 31 '17 at 21:53
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I later found out that my W-2 was correct. The reason why my wages are the same is because the money contributed to the HSA was being contributed through a Section 125 (cafeteria) plan, which made contributions to my HSA non-taxable in the state of Alabama.

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