As you see, TurboTax adds the entire amount of the...
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mspeer
New Member

We received prize money as nonresidents of California, and our non-California employer's HSA contributions are being taxed in California state return. How can we remove this from our California state return?

 
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BMcCalpin
Level 13

We received prize money as nonresidents of California, and our non-California employer's HSA contributions are being taxed in California state return. How can we remove this from our California state return?

As you see, TurboTax adds the entire amount of the HSA contributions to California income, because HSA contributions are not deductible nor excludible in California. You will need to manually adjust the California income account for the fact that TurboTax added back all your HSA contributions, even ones not made in California.

To recap: the federal tax return permits contributions to an HSA to be deducted from federal income tax (up to a limit). However, California does not permit this deduction. Therefore, California, by default, adds the total amount of the HSA contribution back to the federal income, on the assumption that you were a California resident all year.

However, if you were a non-resident when some or all of the HSA contributions were made, an adjustment needs to be made.

Go to State Returns, and navigate to your California return.

In Income and adjustments, proceed through the interview. You may see a screen announcing that HSA contributions are treated differently in California. Just hit Continue.

You will notice on the main page ("Here's the income that California handles differently"), the first line item is (likely to be) "Health Savings Account (HSA) Contributions". Here TurboTax notes that the amount of your HSA contribution has been added back to the California return.

NOTE, despite the Edit button, you can't change this here.

Scroll down to Miscellaneous Adjustments on this screen. Click Start for Other Adjustments to Income.

Enter in the left column "adjustment for out-of-state HSA contributions". Enter in the middle column (i.e., a subtraction) the dollar amount of HSA contributions made out-of-state. This will be subtracted from your California state income.

Make a note on your copy of your state tax return (because, of course, you are going to save a copy, right?) that you made this adjustment because TurboTax added back all the HSA contributions (even ones made while a non-resident), and you needed to counteract this. This is in case you ever get a letter from the state asking about this adjustment.

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