Here's the issue:

@hamphamphas posted in a topic by @jpfazzari from Dec 2019. The answers given to @jpfazzari have nothing to do with the comment made by @hamphamp regarding "right or wrong" for income reduction in boxes 1,3 or whatever.

This is a Mix of two people's issues, which cannot be answered with one answer, as combined.

1. "Taxable wages ARE not reduced by Code W withholding." It isn't by definition withholding. And the employer might correctly be treating it as taxable.

2. "If it all is posted under the Code W the employee is not afforded the income reduction." Unless it already is excluded, which you realize by running the math for that W2. Or, it is all Employer share, so the employee never took the tax hit, anyway, as long as it is not Added to reportable wages. Or, it doesn't qualify until you work on that person's tax return, because the employer doesn't know if the amount is going to qualify or not, as you will learn when you read the W2 instructions for Box 12. For instance, the employee is not the person owning the HSA account, it belongs to the spouse, but had their employer fund it for the spouse's account deducted from the employee's Takehome pay, which makes it not affecting Boxes or taxes on the W2, since it is from Net, not Gross.

3. "My customers tell me it is their contribution and is only withheld by the employer and forwarded to the Trustee for the employee" Which might mean you simply need to prepare the 8889-T/S.

4. Or, it is from this employee's employer cafeteria plan, and the employee doesn't understand what is happening. Or, the employer doesn't do it right.

5. "Wrong the employer DID NOT reduce the taxable income" Have you confirmed this with the employer? Have you compared the employee's Gross of what they think they earn in a year, to the Gross as reported? For instance, someone earns $52,000 a year, and the W2 only reports $48,000 in all boxes that apply, and the Box 12 is $4,000. That means you "don't see it" reduced, because it simply wasn't reported at all. They don't get further tax reduction credit for a contribution to the HSA that already isn't included or reported.

It helps to start your own topic, when your conditions are different than the existing topic.