Daniel, Thank you for replying but I don't fully understand your answer. As a test, I entered 0 for box 12 (code W) on my W2 and my tax due in CA went down. If the HSA isn't being taxed in CA, the tax due in CA would have stayed the same when I changed box 12 to 0 on my W2. The fact that the tax due went down when I changed it to 0 indicates that some portion of the HSA contribution is being taxed in CA. On what form is the proration done? Maybe I can look at the calculations to see what's going on. Thank you.
