HSA and California

[larreajoe]

My understanding is that any cafeteria plan deductions for my HSA are not taxable in CA, but that any employer provided HSA contributions are taxable.  Unfortunately, TurboTax is picking up the full amount of W2 box 12, code W (employer and employee contributions) and making it taxable on my state return.  There doesn't appear to be a way to edit the amount just for my CA return.  I'd really rather not pay any extra taxes that I don't have to.

[Bsch4477]

The IRS considers any contributions made by your employer OR made by you by means of a payroll deduction scheme to be "an employer's contribution".

The rationale is that both amounts are pre-tax. This amount is found with code "W" in box 12 on your W-2.

Since California does not allow the exclusion of HSA contributions from state income, the amount is added back to your federal income for purposes of the state.

[larreajoe]

Thanks for the clarification. 

[Opus 17 · Accepted solution]

The way a cafeteria plan technically works, is that you agree to a voluntary salary reduction, and your employer contributes a portion of your salary into the HSA, along with any employer match.  Your taxable wages in box 1 of your W-2 were already reduced by that salary reduction agreement.  So on your CA return, the entire box 12 code W is added back.  None of that represents double-taxed money.