HSA reporting.

• Author: Laffie, Lesli S.
• Position: From the IRS

A new code (Code W-Employer's contribution to an employee's Health Savings Account (HSA)) to be used in box 12 on the 2004 Form W-2 has been added to the Forms W-2 and W-3 instructions.

The Medicare Prescription Drug Improvement and Modernization Act of 2003 requires reporting of an employer's contributions to an employee's HSA on Form W-2.The amount that an employer contributes to an employee's HSA will be shown in box 12 of Form W-2, using Code W.

Generally, employer contribution to an employee's medical savings account are not subject to income, Social Security/Medicare or Railroad Retirement taxes and will not affect amounts otherwise reported in Form W-2 boxes 1,3 and 5.

Noncustodial Dependency Exemption

The IRS has revised Form 8332, Release of Claim to Exemption for Child of Divorced or Separated Parents, and Pub. 504, Divorced or Separated Individuals, p. 8, to permit a never-married noncustodial parent to claim a dependency exemption when the custodial parent has waived the exemption. Thus, the IRS now agrees with the Tax Court's holding to Jeffrey R. King, 121 TC No. 12 (2003), that a noncustodial parent was entitled to a dependency exemption because the custodial parent signed Form 8332, waiving the exemption.

Background: Sec. 152(a) generally allows a dependency exemption for parents who provided over halt of a child's support during the calendar year. Under Sec. 152(e), the parent with "custody" for a greater portion of the year is treated as providing more than 50% of a child's support, when the child receives more than half of his or her total support for the year from either or both parents, who (1) are divorced or legally separated, (2) are separated under a written separation agreement or (3) lived apart at all times during the last six months of the calendar year. Sec. 152(e)(2)(A) provides that the custodial parent may release (on Form 8332) the claim to the noncustodial parent.

In King, H and W were...