Are HSA contributions through payroll deduction excluded from Medicare wages? Tax question about W-2 reporting

Thanks for confirming! I thought I was going crazy because every other job I've had treated it exactly how you described. So it sounds like her employer might have misconfigured their payroll system? Would this affect her actual Medicare tax withholding too, meaning she probably overpaid?

Yes, if her HSA contributions were incorrectly included in Box 5 (Medicare wages), she would have overpaid her Medicare tax. The Medicare tax rate is 1.45% of wages, so she would have overpaid 1.45% of whatever her HSA contribution amount was for the year. For example, if she contributed $3,000 to her HSA through payroll deduction, she would have overpaid approximately $43.50 in Medicare tax (3000 × 0.0145). You might want to consider having her contact her employer's payroll department to notify them of this potential error.

Does this actually work with complicated W-2 issues? I've tried other tax software and they never seem to catch these kinds of technical errors. How accurate is it really?

I'm wondering how this is different from just talking to an accountant? Did they charge a lot for this service? Seems like something TurboTax should catch.

It absolutely works with complicated W-2 issues! The tool specifically checks for payroll tax calculation errors including HSA, FSA, and other pre-tax contributions. It caught things my regular tax software missed completely because most tax prep software just accepts whatever numbers are on your W-2 without questioning them. The difference from an accountant is accessibility and specialization. While a good accountant might catch this, many don't focus specifically on payroll tax issues. Regular tax software like TurboTax doesn't validate if your W-2 was prepared correctly - it just uses whatever numbers are on there. This tool specifically looks for errors in how your employer reported things.

Wait, how does this even work? The IRS phone lines are literally always jammed. Are you saying this service somehow jumps the queue? That sounds too good to be true.

Sorry, but this sounds like a scam. There's no way some third-party service can get you through to the IRS faster than calling directly. The IRS doesn't give special access to anyone. I've been a tax preparer for years and we all have to wait on hold just like everyone else.

It doesn't jump the queue - it waits on hold for you. Their system repeatedly calls and navigates the phone tree until it gets through to an agent. When an agent answers, it calls you and connects you directly to them. No magic, just technology saving you from having to sit on hold for hours. The service works by using automated systems to continuously call the IRS, navigate through all the prompts, and wait on hold so you don't have to. When they finally reach a human agent, they immediately connect you. It's basically like having someone else wait on hold for you.

Wouldn't this trigger an audit though? I've always heard that filing anything that doesn't match your W-2 exactly is like waving a red flag at the IRS.

Filing Form 8275 doesn't automatically trigger an audit. It's actually designed to reduce the risk of penalties by showing you're being transparent about why there's a discrepancy. The IRS appreciates when taxpayers document their positions rather than filing returns with unexplained differences. In this specific case, you would report the W-2 Medicare wages as they appear on your actual W-2, but then you would make an adjustment on Schedule 8812 to reduce the Medicare tax base by the amount of the HSA contribution. The form 8275 explains this adjustment with reference to the relevant tax code sections that confirm HSA contributions are exempt from Medicare tax.

This is super helpful! Do you know if there's a time limit for employers to correct W-2s? My employer made this same mistake for 2023 but I just realized it now in April 2025.

There's no specific deadline for employers to issue corrected W-2s once they become aware of an error. However, for tax year 2023, you still have time to address this since the statute of limitations for tax returns is generally 3 years from the filing deadline (so until April 2027 for 2023 returns). If your employer won't issue a corrected W-2c voluntarily, you can contact the IRS and they can compel the employer to correct it. You might also want to check if this affected multiple years - payroll system errors often persist until someone catches them. @f0db9d4314a5 might have more insight on the employer correction process from the payroll side.