BillM223
Expert Alumni

Get your taxes done using TurboTax

If you are sure that CA does not tax the investments inside your HSA, then I would not enter anything in the screen that is titled "Enter Your Health Savings Account Earnings". 

 

As you can see, there is no way in the software to easily enter earnings while making them non-taxable.

 

Instead, I would suggest that you write up a note to yourself about why you did not enter the CA-exempt interest inside your HSA (because the software would have taxed it), print it, and stick it in your tax file in case anyone ever asks.

 

The only other way would be to enter the interest earned in the HSA window, then enter a negative amount elsewhere on the return as an adjustment, but I think that this is more likely to confuse people than help.

 

After all, if you don't enter the non-taxable interest, then your CA taxable income will be correct, which is what we want.

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