Employer & Taxes Issues

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BarDownHockey
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Employer & Taxes Issues

Post by BarDownHockey »

[Topic is now in Personal Finance (Not Investing) - tax question. mod mkc]

(Note: updated post on 4/4 to make it more concise)

I hoping for help with two tax related issues:

1. Question resolved

2a. Question resolved

2b. Over contributed to dependent care: DW switched employers part way through the year. We messed up tracking her deductions for the year. The total amount deducted from her paychecks between Company A and B was $6,500 (or $1,500 over the limit for dependent care account deductions). The sum of box 10 on both her W-2s total $6,500. What is the proper way to handle the excess $1,500 (contact employer B and have it removed)?

3. HSA vs W-2 difference: Company B made a $1,000 employer contribution to her HSA. However, her W-2 does not have it listed (she was expecting to see code W and the dollar amount in box 12). Her employer said that since the employer contribution is made outside of their 3rd party payroll provider, it doesn't show up on the W-2. But they said the employer contribution is made pre-tax, so it wouldn't affect her taxable income. They also said they will not issue a W-2C. Is there a proper way to handle this on the tax return, or does she need to contact the IRS about an incorrect W-2 that the employer will not fix?
Last edited by BarDownHockey on Thu Apr 04, 2024 8:34 am, edited 2 times in total.
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whodidntante
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Re: Switched Employer Mid Year - Issues with a Couple Investments / Benefits

Post by whodidntante »

1. If you receive the return of contributions before the filing deadline, it's my understanding that you can avoid double taxation, but you'll still have to pay taxes on it for TY 2023. I had a similar situation and the hassle and fees made it very not worth it, so I just chose to leave the overcontribution in the plan.

3. Since you should not receive a tax benefit from the situation, what I would do is report the W2 as provided, and list the extra $1,000 nowhere, and keep great documentation of what happened for the next seven years.
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BarDownHockey
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Re: Employer & Taxes Issues

Post by BarDownHockey »

I updated the original post to make it a quicker read. I appreciate anyone's help with these.
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neurosphere
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Re: Employer & Taxes Issues

Post by neurosphere »

BarDownHockey wrote: Tue Apr 02, 2024 5:48 pm 2b. Over contributed to dependent care: DW switched employers part way through the year. We messed up tracking her deductions for the year. The total amount deducted from her paychecks between Company A and B was $6,500 (or $1,500 over the limit for dependent care account deductions). The sum of box 10 on both her W-2s total $6,500. What is the proper way to handle the excess $1,500 (contact employer B and have it removed)?
Tax software will catch this and appropriately add back $1500 in taxable income. This happens routinely when an individual contributes $5000 but then decides to file separately, thus creating a $2500 over-contribution.
3. HSA vs W-2 difference: Company B made a $1,000 employer contribution to her HSA. However, her W-2 does not have it listed (she was expecting to see code W and the dollar amount in box 12). Her employer said that since the employer contribution is made outside of their 3rd party payroll provider, it doesn't show up on the W-2. But they said the employer contribution is made pre-tax, so it wouldn't affect her taxable income. They also said they will not issue a W-2C. Is there a proper way to handle this on the tax return, or does she need to contact the IRS about an incorrect W-2 that the employer will not fix?
You will report the employer contribution on form 8889 even if it's not on your W2. [Edited to add: some software may not allow you to enter a value here if it's not on the W2 with code W...if so...ignore the $1000 on your taxes.] Note that the employer contributions AND the employee contributions made through payroll (if any) are both employer contributions reported on line 9. If she made her own contributions (e.g. paid directly to the HSA), those go on line 2. As long as the $1000 + her own contributions are less than the limit there isn't a problem.
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes" (even in taxable accounts).
toddthebod
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Re: Employer & Taxes Issues

Post by toddthebod »

BarDownHockey wrote: Tue Apr 02, 2024 5:48 pm 2b. Over contributed to dependent care: DW switched employers part way through the year. We messed up tracking her deductions for the year. The total amount deducted from her paychecks between Company A and B was $6,500 (or $1,500 over the limit for dependent care account deductions). The sum of box 10 on both her W-2s total $6,500. What is the proper way to handle the excess $1,500 (contact employer B and have it removed)?
This is easy. When you fill out form 2441, you will end up with the excess on line 26, taxable benefits. This flows to line 1e on your form 1040.
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grabiner
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Re: Employer & Taxes Issues

Post by grabiner »

neurosphere wrote: Thu Apr 04, 2024 8:52 am
BarDownHockey wrote: Tue Apr 02, 2024 5:48 pm 3. HSA vs W-2 difference: Company B made a $1,000 employer contribution to her HSA. However, her W-2 does not have it listed (she was expecting to see code W and the dollar amount in box 12). Her employer said that since the employer contribution is made outside of their 3rd party payroll provider, it doesn't show up on the W-2. But they said the employer contribution is made pre-tax, so it wouldn't affect her taxable income. They also said they will not issue a W-2C. Is there a proper way to handle this on the tax return, or does she need to contact the IRS about an incorrect W-2 that the employer will not fix?
You will report the employer contribution on form 8889 even if it's not on your W2. [Edited to add: some software may not allow you to enter a value here if it's not on the W2 with code W...if so...ignore the $1000 on your taxes.] Note that the employer contributions AND the employee contributions made through payroll (if any) are both employer contributions reported on line 9. If she made her own contributions (e.g. paid directly to the HSA), those go on line 2. As long as the $1000 + her own contributions are less than the limit there isn't a problem.
If the software doesn't allow you to report it, you still need to report the correct number on Form 8889. The IRS will check Form 8889 against the Form 5498 that it receives to report the contributions, and will flag the mismatch. If your software allows you to make form entries, go into forms mode and enter the correct number.

Another reason you need to report this is that it is taxable income in CA and NJ, which do not recognize HSAs.
Wiki David Grabiner
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neurosphere
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Re: Employer & Taxes Issues

Post by neurosphere »

grabiner wrote: Sat Apr 06, 2024 11:37 am
neurosphere wrote: Thu Apr 04, 2024 8:52 am
BarDownHockey wrote: Tue Apr 02, 2024 5:48 pm 3. HSA vs W-2 difference: Company B made a $1,000 employer contribution to her HSA. However, her W-2 does not have it listed (she was expecting to see code W and the dollar amount in box 12). Her employer said that since the employer contribution is made outside of their 3rd party payroll provider, it doesn't show up on the W-2. But they said the employer contribution is made pre-tax, so it wouldn't affect her taxable income. They also said they will not issue a W-2C. Is there a proper way to handle this on the tax return, or does she need to contact the IRS about an incorrect W-2 that the employer will not fix?
You will report the employer contribution on form 8889 even if it's not on your W2. [Edited to add: some software may not allow you to enter a value here if it's not on the W2 with code W...if so...ignore the $1000 on your taxes.] Note that the employer contributions AND the employee contributions made through payroll (if any) are both employer contributions reported on line 9. If she made her own contributions (e.g. paid directly to the HSA), those go on line 2. As long as the $1000 + her own contributions are less than the limit there isn't a problem.
If the software doesn't allow you to report it, you still need to report the correct number on Form 8889. The IRS will check Form 8889 against the Form 5498 that it receives to report the contributions, and will flag the mismatch. If your software allows you to make form entries, go into forms mode and enter the correct number.
Good point. I just checked in TaxAct. At the top of the 8889 (in forms mode) is a mini worksheet with three lines to report contributions. It automatically pulls in "W-2 Box 12 with Code W". But one can report after-tax contributions and pre-tax payroll deductions. If one enters the employer contribution that was NOT reported on the W2 as a "pre-tax payroll deduction), the rest of the form populates correctly.
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes" (even in taxable accounts).
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