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How do I prevent my total annual employer HSA contributions from being counted as taxable income on my CA non-resident tax returns? I only worked in CA for 3 days.

I worked in CA for 3 days this year, and my annual total for employer HSA contributions is being automatically applied as taxable income for CA.
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2 Replies

How do I prevent my total annual employer HSA contributions from being counted as taxable income on my CA non-resident tax returns? I only worked in CA for 3 days.

A part-year resident or non-resident of California needs to report only California source income in the time period that he/she is a non-resident (in your case, that's the 3 days' worth).

Please see the following:

Part-year California residents and nonresidents often find that TurboTax adds back all the HSA contributions, even ones made in another state.

There is no good way for TurboTax to know in which state the contributions were made in, so the taxpayer needs to manually adjust the California state income to remove the HSA contributions that were added back while the taxpayer was not in California.

For example, if the taxpayer lived 6 months in California and 6 months in Texas, and made $3,000 in HSA contributions evenly distributed over the year, then the taxpayer should adjust the California state income by $1,500 to remove one half of the total HSA addback that was done to California state income by TurboTax.

In your case, you will need to divide 3 by 365 and then multiply this by your total HSA contribution. This becomes your California HSA add back.

But since California has already added back the whole amount, you will need to make an adjustment for the non-CA contributions, so subtract the CA amount from the total amount and enter as described below.

***To make the CA adjustment***

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.

ctoumey36
New Member

How do I prevent my total annual employer HSA contributions from being counted as taxable income on my CA non-resident tax returns? I only worked in CA for 3 days.

Thank you, TurboTaxBillMC! I added the subtraction amount in the Other Adjustments to Income part of Misc Adjustments, but it doesn't change the amount of taxes that I owe CA. If I'm subtracting from my taxable income, shouldn't it reduce the amount of income taxes that I owe?
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