BillM223
Expert Alumni

State tax filing

If all the income in your HSA is from tax-free sources, as yours appears to be, then you do not have to report any income in the investment account that California thinks your HSA to be. That is, when CA asks you for the ordinary income and capital gains from your HSA investment account, you just enter zero.

 

However, you may need to make adjustments on your CA return for HSA contributions and distributions. You did not discuss contributions and distributions to/from your HSA account, but if you had any, then you will have to make adjustments (although TurboTax normally will have done them for you). The tax consequences of the contributions and distributions are the same for CA whether or not the HSA is invested in tax-free items or not.

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