I participated in my companies FSA in 2017. I elected to have the max of $2600 deducted from my paycheck. I think payroll fucked up and didn't time the deductions correctly, so I only had $2275 actually deducted even though I used the full $2600. Anyway, that's more of a side point and you can read more about that in this thread:
https://forum.mrmoneymustache.com/welcome-to-the-forum/i-think-i-fucked-up-my-401k-contributions/Back to the topic at hand though. I filled out my taxes in turbotax using my last pay stub before I got my official W2. Now I have my W2, and everything matches up with what I was expecting based on my pay stubs, except I have an entry of $2275 in box 12c coded as W.
It was my understanding that code W is for HSA contributions, NOT FSA contributions. medical FSA deductions through payroll do not show up on the W2 at all. Is my understanding correct?
When I put the $2275 into turbotax box 12c code W, turbotax thinks I have an HSA (which I don't) and asks me a bunch of questions regarding my nonexistent HSA.
I'm not sure what's going on, but after I enter the value in turbo tax both my "Income and adjustments" and "taxable income" increase by $2,895 and my federal taxes increase by $861. Why would my income increase at all due to FSA contributions? Why/how does it increase it so much more than the actual contribution amount? Even if it was counted as income, how is it increasing my taxes by $861? That seems to be a tax rate much higher than my actual brackets..
My earned income is around $46k, and I have around $67k in LTCG, I am MFJ. That should put my earned income into the 15% tax bracket, and my LTGC is enough to bump me into the 25% bracket. I have no idea how this FSA contribution is increasing my taxes so much. Any insight?