California does not recognize an HSA contribution as an adjustment to income so on the CA return it removes that adjustment. 

I understand that California taxes HSA but why would I have to pay twice?  I paid money directly out of my pocket to my HSA account at Fidelity (not through my employer), TT has me paying tax again on the same money I was taxed on when I earned the money earlier that year.  I am not looking for CA to give me a tax deduction only the Fed deduction.  At the same time I should not be taxed by CA a second time.

CA isn’t taxing your contribution. It is adding it to your taxable income after the federal return deducted it.

You are not understanding my question.  There is a bug in the software.  That income was taxed once there is no box 12 involved.  I was taxed on it to begin with.  I am not trying to get a tax deduction from CA.  I paid the tax when I earned it and did not go through an employer contribution.  Therefore this should only affect Fed.  When I add this at the end as my own contribution, I would only get a Fed Tax deduction because I paid taxes to the Fed as well when I earned the money.  Does this make sense?

What the program is doing is adding the HSA contribution amount to your federal income on the Schedule CA 540. BUT it is adding it to the federal amount that was calculated AFTER the contribution was deducted from federal income. The result is that you are not taxed by CA on that amount.  You are just not getting a deduction for it.

Thank you for the clarification.  However, to test your theory, I pulled out the money out to see how TT would handle this, and to my surprise not only did my Fed Taxes go up, but so did my CA Taxes.  The CA taxes should not have budged.  To be clear this is in "Let's Enter X Person's (me)  HSA Contributions" and I enter $1 from where I originally put $3,467 before into the field that says "Any Contributions you personally made (not through your employer)" The Fed taxes go up significantly as expected, but also my taxes for the State of CA go up $43.  Please explain not only why CA taxes would change, but why it would my taxes increase by removing this deduction, since CA does not conform to HSA.  I still believe there is a bug in the way HSA is being treated for CA  FTB.

I will elevate this to a supervisor who hopefully can investigate this further.

thank you very much!

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