This article (January 2025) indicates CA taxes HSA growth as well as dividends and interest. Reason #237 why I need to leave CA.
The example is poor because he uses interest as an example of growth. But other articles I've read say earnings are taxed (https://thefinancebuff.com/california-new-jersey-hsa-tax-return.html ). So do we need to subtract the HSA starting balance on 1/1 from the ending balance on 12/31 and report that as "earnings" to CA?
Unlike federal law, which allows tax-free growth of HSAs, California taxes all earnings within these accounts, including interest, dividends, and capital gains. For example, if an HSA generates $500 in interest over a year, this amount must be reported as taxable income on the California state return.
Account holders must track HSA earnings to ensure accurate reporting and avoid penalties or interest for underreporting. This taxation can significantly impact those with large account balances or high-performing investments, underscoring the importance of diligent record-keeping.
https://accountinginsights.org/is-hsa-growth-taxable-in-california-key-tax-rules-to-know/
