Sloppy W-2s

[Snaggletooth]

Had some clients who had Medical Savings Accounts and even 401k contributions deducted from their paycheck, but no reduction in the taxable income from their W-2s. My response was to deduct them as an "adjustment" so they would get the tax benefit.

How did I know this? Taxpayers showed me their final check stub and I was able to "follow the money" to discover. I've seen enough W-2s to know what they should look like. The problem was the employer didn't know how to prepare a W-2, and the qualifying issue would be confirmed since the taxpayer received 1099-SA in the same year.

I'm assuming many of you analyze W-2s in the same way, and may occasionally come to the conclusion that these employers don't know what they're doing. How do you best deal with this?

One answer I don't want to hear from you is "Have you discussed this with the employer?" You haven't done much work in this area if you believe this to be effective (or even possible). Having the time to discuss with an employer is rare, as they won't talk for privacy reasons, and are not going to revamp their payroll processing just to please you, even if it is wrong.

[Rapid Robert]

Had some clients who had Medical Savings Accounts and even 401k contributions deducted from their paycheck, but no reduction in the taxable income from their W-2s. My response was to deduct them as an "adjustment" so they would get the tax benefit.

Archer MSAs? I've never ever seen one of those.

I don't recall ever seeing a W-2 with 401k or other pretax retirement treated incorrectly. By the time an employer gets big enough to set up a plan for multiple employees which includes salary deferrals, I think most of them do have competent payroll departments.

[Lion]

Form 4852.

[kathyc2]

Had some clients who had Medical Savings Accounts and even 401k contributions deducted from their paycheck, but no reduction in the taxable income from their W-2s. My response was to deduct them as an "adjustment" so they would get the tax benefit.

How did I know this? Taxpayers showed me their final check stub and I was able to "follow the money" to discover. I've seen enough W-2s to know what they should look like. The problem was the employer didn't know how to prepare a W-2, and the qualifying issue would be confirmed since the taxpayer received 1099-SA in the same year.

I'm assuming many of you analyze W-2s in the same way, and may occasionally come to the conclusion that these employers don't know what they're doing. How do you best deal with this?

One answer I don't want to hear from you is "Have you discussed this with the employer?" You haven't done much work in this area if you believe this to be effective (or even possible). Having the time to discuss with an employer is rare, as they won't talk for privacy reasons, and are not going to revamp their payroll processing just to please you, even if it is wrong.

I assume you mean HSA rather than MSA. MSA's are pretty much defunct as you needed to be eligible pre 2008. If employer has an HSA through a 125 plan, taking the deduction on the 1040 only affects FIT and not FICA as it should be handled on the W-2. The 1099SA only shows the disbursement, not the contribution.

If the 401K is not showing on W-2, where do you make the "adjustment"? As an IRA? Guessing doing so will generate a CP notice, as the IRS will not be receiving notification that employee contributed to IRA.

Even though you "don't want to hear it", if the W-2 is incorrect I will 100% of the time contact the employer. Not once have I had an employer not correct a W-2 after I point out to them what they did incorrectly. In fact, most of them are grateful.

[FEDUKE404]

Never change the tax document information

Except in the rarest of rare cases I don't think I would be in a position to judge a W2 as "being incorrect."

I've learned from experience it is doggone impossible to come up with the right numbers to appear on the W2, especially when you have things such as pre-tax insurance, dependent care accounts, 401k plans, and cafeteria plans all in play. [ Reminds me of the days when Block, J-H, and Liberty were all preparing cash advance returns in early January from a December paystub. . .with no W2 in sight. ]

So, I report what is on the W2 and advise the client to pursue the possibility of an error if such appears probable. I cannot be making assumptions and then changing numbers already present on a reportable tax document.

I'm somewhat amazed that tax preparer "changes" to the document information apparently appear to be quite common. NOT a smart way to do things, IMHO.

FE

[Snaggletooth]

More conversation

Yes, I had counted on conversation from some of you who don't agree.

Simply put, the taxpayer was entitled to a deduction/deferral, and was denied by the production of a sloppy W-2. Check stub deduction for an HSA (yes Kathy not an FSA) should result in a reduction of taxable W-2 income with no corresponding reduction in FICA or Medicare wages. When taxable income is the same as FICA/Medicare wages, you realize something is wrong.

And the existence of a 1099-SA is proof that the HSA was qualified and properly set up by the custodian.

Kathy, I'm surprised at your good results with contacting the employer. I don't know whether you practice in a small town or in mega-dianapolis. Most employers will not discuss their employees' business with me for privacy reasons, and the ones that do will tell me their payroll is overseen by a competent CPA and under no circumstance would produce a corrected W-2 in a matter of days. In my small town, payroll and bookkeeping is delegated to someone's wife or neice, who are hardly properly trained and therein lies much of the problem. The quality of the programs is simply sold by a representative of a benefits salesman.

I have taken adjustments for three clients who were denied proper treatment on their W-2s. Some of you believe this may launch a CP notice from the IRS. If so, we will be happy to pass on the information and the deviant treatment by the employer. You would think the IRS would investigate the employer but the odds are they are not diligent enough to open up such a can of worms.

[kathyc2]

Simply put, the taxpayer was entitled to a deduction/deferral, and was denied by the production of a sloppy W-2. Check stub deduction for an HSA (yes Kathy not an FSA) should result in a reduction of taxable W-2 income with no corresponding reduction in FICA or Medicare wages. When taxable income is the same as FICA/Medicare wages, you realize something is wrong.

And the existence of a 1099-SA is proof that the HSA was qualified and properly set up by the custodian.

Some employers will deduct an after tax deduction for HSA and remit it to the bank that holds the HSA account. This is simply a convenience for employee. In that case it should not be on the W-2, other than if employer chooses to put it in box 14 for informational reporting. Since it's after tax the deductions should be taken on 8889.

If instead of an after tax deduction it's though a 125 plan, than the HSA amount will be exempt from FIT and FICA. In this case the amount with W should show in box 12. I'm not aware of any situation where is would be exempt for FIT but not FICA on a W-2.

1099SA only shows that money was disbursed from the account. The custodian does not have "proof" that the insurance is HSA eligible. When I set mine up at a CU years ago, I only had to state that I was eligible, they did not ask to see the insurance policy. They have never since asked if I have an eligible account when I contribute money.


As far as employers talking with me, I don't just cold call. I first have the client contact and tell them I have a question regarding the W-2 and that it's okay to talk w/ me regarding their pay.