Thanks Bill. You are correct there is a relationship.
On my original as filed, there is an entry for $1,292 in box 13 of schedule 1 and there is a form 8889 as well. On the Amended Federal version - I haven't pulled the trigger yet - when I remove form 8889, there is nothing in box 13 of schedule 1. So can I assume Schedule 1 box 13 generates Form 8889?
I haven't filed the amended version yet because if I use TurboTax, where it seems that Form 8889/Schedule 1 flow from Federal to State, then it looks like I owe the state money because the $1,292 is not deducted on my W2 State box. Do I need to try to get a revised W2 with the state and federal income matching? Or is there a way to just file the TT Federal Amendment, which would then be right, and not have it amend my state, which would then be wrong? Or do I need to do it manually and bypass TT?
As I understand it (please correct me if I am wrong) you showed HSA contributions made by means of payroll deduction on your W-2 in box 12 with a code of W, AND you deducted the same amount as a "personal contribution" in the HSA interview.
If so, you duplicated the contributions. When you amend your 2024 return, remove the entry for the personal contribution in the HSA interview (since it was already excluded on your W-2).
This will remove the entry on line 13 on Schedule 1 (1040). If you had made this duplication on your original 2024 return, then this amendment will increase your federal tax, and by extension will increase your PA tax.
Please do not remove the 8889 just to reduce your PA taxes, since such a move would produce and inaccurate tax return.
The 8889 reports on a number of issue dealing with the HSA. You must file the 8889 if you made any contributions to and/or took distributions from your HSA. You made contributions to your HSA so the 8889 belongs on your return. If you correct the duplication of your HSA contributions, then the numbers on your 8889 will change, so the 8889 should be a part of your amended return as well.
If you made an HSA contribution directly to the HSA custodian, then TurboTax will automatically add this to Schedule O on your PA return, and so it will be deducted in PA. If you should not have made this personal contribution on the federal return, the correct thing to do is to fix the federal return by removing the personal contribution and let PA take care of itself.
Did I understand you to say that the State Wages reported in box 16 on your W-2 included your code W amount in box 12 of your W-2? If your employer did this, this was a mistake on their part. As I noted in a previous post, contributions to HSA reported by code W in box 12 on your W-2 are NOT taxable in Pennsylvania, and therefore should NOT have been added back to state wages in box 16 of your W-2.
Many employers get confused by "cafeteria plans" and HSA contributions, thinking that there are one and the same. They are not. These are required to be treated differently when the occasion calls for it, like here.
OK, if your employer did this (adding your code W amount to state wages), then you can fix this in TurboTax.
Go into your PA interview. As you go through the interview, you will come across a screen entitled "Compensation Summary". Click on Edit for the employer whose W-2 has the code W in box 12. On the next screen, click on "I need to make an adjustment to the taxable amount of this income", then click on Continue.
On the next screen, if you are sure that you code W amount from your W-2 was added to state wages on your W-2, subtract it from the PA taxable amount here. E.g., If your Wages in box 1 on the W-2 is $40,000, the code W amount is $1,234, and the state wages in box 16 is $41,234, then enter $40,000 for your PA taxable income.
The success of this depends on you being sure of what your employer did. But if you duplicated your contributions on the original return, you will not end up with smaller federal and PA taxes, if you do all this correctly.
