No, you will not get taxed twice. Let me explain this as simply as I can. California does not tax unemployment benefits period. If you look at Section B, Line 7 of Schedule CA, your entire unemployment is reported in Column A BUT subtracted out in Column B. As a result, your entire unemployment compensation is untaxed.
Now $10,200 is added back into your California return on Schedule CA and Line 16 of your CA 540. This is because the federal AGI that is transferred over from the federal return reflects the $10,200 federal unemployment exclusion. This must be added back to your California AGI to correctly reflect your correct CA taxable income amount. If allowed to be unchanged, not only will not not be taxed for the entire amount of your unemployment benefits, you would be receiving a $10,200 income exclusion on top of it. It would be like double-dipping into the candy jar. The addition only restores California taxable income to normal.
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