topic Index bonds with treasury obligations for HSA in CA in State tax filing

Index bonds with treasury obligations for HSA in CA

kct — Wed, 05 Feb 2020 01:10:37 GMT

I have a few index bonds in my HSA, which generate dividends, and therefore may need to pay tax as a resident in CA.

1. One of the index bonds (FNBGX) is made up of around 99% of treasury obligations. Does this mean that 99% of dividends is tax free in CA?

2. Another index bond (FXNAX) is made up of around 43% of treasury obligations. Just wanted to confirm that if the treasury obligations is less than 50% of treasury bonds, the full amount of dividends is still taxable in CA for 2020.

Thanks!

Re: Index bonds with treasury obligations for HSA in CA

BillM223 — Thu, 06 Feb 2020 15:06:48 GMT

1. Yes, the interest from the treasuries is tax-free in CA.

2. No, the interest from the treasuries is still tax-free in California. You have to do the math to make the subtraction as a CA adjustment.

Be sure to keep your worksheets in your tax file so that you can remember what you did (in case anyone ever asks).

P.S. "If the treasury obligations is less than 50% of treasury bonds, the full amount of dividends is still taxable in CA for 2020."

It sounds like you read this someplace - can you tell me where?

Re: Index bonds with treasury obligations for HSA in CA

kct — Fri, 07 Feb 2020 07:45:29 GMT

Hi @BillM223 ! Thank you for the response.

This is the 2018 document from Fidelity, so it's not up to date. Basically states that "California, Connecticut, and New York exempt dividend income only when a fund has met a certain minimum investment
in U.S. government securities"

https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/taxes/2018-gse.pdf

Also from this post, but it's also a little old and may be applying to 2018 tax year only: https://ttlc.intuit.com/community/state-taxes/discussion/can-i-exclude-us-government-obligations-in-california-for-my-vanguard-total-bond-market-index-fund/01/569692#M26026

Basically I wanted to check that the above is still true for tax year 2019.

Re: Index bonds with treasury obligations for HSA in CA

BillM223 — Fri, 07 Feb 2020 15:14:39 GMT

Thank you for that quote.

I finally found it in CA Pub 1001 for 2018 -

"California does not tax dividends paid by a fund attributable to interest received from U.S. obligations or California state or municipal obligations IF at least 50% of the fund’s assets would be exempt from California tax when held by an individual."

Is it still true for 2019? I don't know - Pub 1001 for 2019 is still not available, because it is still undergoing updates.

So I imagine the safest course is to assume that it is still true - but to check back at the 1001 to see what it says when the State gets around to finally updating the publication.