First, the state of California does not recognize HSA contributions as deductible.

You evidently have an entry of $660 in box 12 on your W-2 with a code of W. These are HSA contributions made through your employer (either by your employer or by you by payroll deduction).

As you note, this amount is removed from Wages in boxes 1, 3, and 5 before your W-2 is printed. This is why it is a federal tax benefit - you don't even report it as income.

California automatically adds this amount back to state income. This is correct, and there is nothing for you to fix here.

On the other hand, New York does recognize the HSA deduction so you normally have nothing to do here.

"The form lists HSA $660 in life 15 column A as Federal Other Income" - by any chance, is $660 listed on line 8 in Schedule 1 (1040)?

If you are an Online user, you can see your 1040 and its three schedules at any time by doing the following: on the left, click on Tax Tools, then click on Tools underneath, then click on View Tax Summary in the center, then click on Preview My 1040 back on the left.

Otherwise, I don't know why the NY return would even report this.

Thank you for reading and commenting. I looked at the schedule 1 (1040) form. There is nothing listed for other income. It's blank. Schedule 1 (1040) only lists my total income.

I looked at the entire 1040 form. No mention of 660 anywhere.

The $660 that was in box 12 on your W-2 with a code of W should be on form 8889 on line 9 - employer contributions.

If it is not, then you have another issue...

As for New York City, it would take me quite a while to build a test case for this to even see that worksheet (and today is not a good day for that), but this amount should not be added to City income (if that is what it is doing). Feel free to zero it out if you can, and document whey you did it for your own records. 

The HSA contribution should not be an adjustment (either way) to federal income (or state income).

@BillM223so far you are helping me get on the right track. I checked Form 8889 line 9 and $660 is there. No additional issues. Any advice on the best way to zero it out so I can still e-file? The error is preventing me from e-filing with TurboTax. First time I've ever encountered HSA and issues like this.

I assume that you are using the CD/download software, because you said "This total other income cell I can modify but it shows $660. "

So can you not modify that cell to zero? Or modify a cell with -660 if you have to to get the addback to income to be zero.

Whatever you have to do, write what you did down and stick it your tax file so that the the City ever writes you wondering where this -660 came from, you can tell them that you were having to compensate for a possible software issue.

I filed for an extension as a side-note.

I am using the web desktop version, not the downloaded/CD version. However, the web version still gives me an opportunity to correct the total other income cell. There is a strange loop that occurs when I see the error and try to correct it by applying -660.

Here is what happens:

1. I see the error and able to modify to -660

2. Click continue because the error has been resolved and it takes me to confirm all of my information

3. Performs another smart check and takes me back to the error OR

3. I try to file it ...

4. It fails and says "Your transmission didn't go through. We could not e-file your return for the following reason: We're sorry, we have found errors in your return that prevent us from efiling. Please return to the "Review" tab to resolve these issues."

I agree there is likely a bug. Is there really no way to resolve this issue and e-file?

New York requires that returns MUST be e-filed if a software is used to prepare a return.