"Did software add $110 and $10 = $120, or did it calculate based on just $110?"
Neither. Remember I said that the $110 in box 16 on the W-2 is ignored - it's on the 540 but it's not used.
Since the income from the federal return is $100, and the HSA contribution is $10, the $110 comes from adding the $10 HSA contribution to the $100 federal income. You see?
"a). If it used $120, then I need to do a manual adjustment and adjust software from double taxing HSA"
It is not using $120, for the reasons I gave above.
"b). If it smartly used federal wage and 12.d W, then it calculated based on $110, and adding adjustment will cause me to underpay California Tax liability."
What adjustment? Did you make one? If you did, then your state income is wrong.
In the case you describe (the simple case), don't make any adjustments and the CA state income will be correct. TurboTax will do it correctly automatically.
Make sense?
@yemser
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