W-2 Box 12c code W- for HSA contribution

Client has a W-2 box 12C with a code of W and an amount of $3,000. The back of the W-2 says that code W pertains to an employer contribution to the HSA. I questioned the client and asked him to sent me his last pay stub which comes from a payroll service. It looks like the $3,000 is a pre-tax HSA contribution which has reduced his taxable income on box 1 of the W-2. Client confirmed with the HR department that the $ 3,000 was an employee contribution which was pre-tax. Why is the contribution coded on the W-2 as an employer contribution ? Since the employee contribution is pre-tax no HSA deduction would be applicable on the 1040 as an adjustment of income on schedule I part II line 12 ? An after tax contribution would be an HSA deduction on the 1040 ?

Any thoughts by the group !

One can contribute to an HSA with post-tax dollars, I believe. If so, the entry on the W-2 helps the IRS spot over-contributors.

Why is the contribution coded on the W-2 as an employer contribution?

For cafeteria plan purposes, stuff that an EE does pre-tax are deemed to be ER contributions. You and I would describe the EE’s pre-tax contribution as having been made by the EE, but the tax rules simply classify it as an ER contribution. See Line 9 Form 8889, for example, in the case of an H/S/A…and then see the instructions for that line.

The theory goes like this: EE has an agreed upon salary of $100k. The EE wants $3k to go into his H/S/A account. The ER agrees, so now we have a “salary reduction agreement.” EE is therefore paid $97k. $3k gets plopped into the H/S/A account.

Who is it that really made the $3k contribution – The EE or the ER? On the one hand, looks like the EE, since his pre-agreement pay was $100k and he ended up with $97k. But on the other hand, the EE agreed to take $97k of pay in exchange for his ER agreeing to put $3k into his H/S/A account.

Who paid the $3k? All I can tell you is that the tax rules would say the ER did…

Just pop open your 8889 worksheet and plug away, it'll pick it up from the W2, so often you only have to check the box for self or family and you're done.

To OP - think of it this way. Let's suppose that the W-2 and the HSA contribution are the ONLY things on the TP's return.
Scenario !: W-2 wages are $100,000. TP makes a $3,000 HSA contribution POST-tax (via payroll deductions or direct pay) which is recorded on Form 8889 in Part 1 towards his annual contribution limit to his HSA. AGI is $97,000 and TP has $3,000 in his HSA account. He may or may not be able to make addl contributions - depending on his HSA policy details, etc.

Scenario 2: W-2 wages are $97,000 (due to the pre-tax contribution of $3,000). Employer pays the $3,000 to the TP's HSA account. Code W shows up on Form 8889 in Part 1 as part of his annual limit on contributions. So AGI is $97,000 and TP has $3,000 in his HSA account. Again, he may or may not be able to make addl contributions - depending on his HSA policy details, etc.

In both scenarios TP has $3,000 in his HSA account on which he was not taxed. In both scenarios, AGI is $97,000. I get the feeling that you think the TP is getting short-changed somehow by the ER designation on the HSA contribution, but it really doesn't make a difference in the end.