@CA-deedee wrote:
Thank you for your response. For clarification, my husband and I reside in California. All of our income has been acquired in California.
Based on your additional response, it appears that the turbo tax software is correctly classifying the HSA personal contribution (monies that have already been taxed) as a Federal credit and as a California State income source.
Seems strange that California would tax HSA personal monies contribution (already taxed monies) as income. Seems to be double taxation??
Any additional thoughts?
It's not being taxed twice. It's being added back and taxed once.
If you have employer or employee contributions by payroll deduction, they are recorded in box 12 of your W-2 and are not included in your W-2 box 1 taxable wages. California adds them back to your taxable wages so they end up being taxed once.
Then, if you made contributions outside of payroll deductions (direct out of pocket contributions) those are subtracted on the federal return and not subtracted on the CA return.
However, it is important not to double up on your HSA contributions. Box 12 of your W-2 lists all contributions made by payroll deduction, both free employer money or match and your payroll contributions. (The law considers that you enter a salary reduction agreement with your employer that reduces your salary and puts the money in the HSA instead so its all "employer contributions.") Later in the program when you are asked about additional contributions, only enter contributions made out of pocket not through payroll. (If you enter your employer contributions in this section, you will get an illegal double deduction on your federal return and you will be double taxed in CA.)
