HSA earnings taxable in California

[RobertB4444]

@vord0701  Yep.  Only California and New Jersey.

[ewrenn]

I see that HSA earnings are taxable and that there is a bill in California to change this that has not yet passed.

To clarify, are any pre-tax contributions that I or my employer make to my HSA also taxable in California? Each pay period my employer contributes some and I contribute some to reach the maximum allowable. I had an FSA for years and those contributions were not taxable in California.  Does California treat FSAs and HSAs differently?

[DMarkM1]

Yes, CA treats FSA and HSA contributions differently.  HSA contributions are taxable in CA but FSA contributions are not taxable in CA.  The amounts you and/or your employer contribute to your HSA are reported in Box 12 with code W and excluded from Federal and initially CA taxable income shown in box 1 of your form W2.  Those contribution amounts shown in box 12 are then added back to CA taxable income in the CA state interview.  

FSA contributions are also excluded from box 1 of your form W2 with the contribution amounts showing typically in box 14 for informational purposes.  Those contributions are not added back to CA income in the CA state interview.  

[shiyi11]

@ter2b2 

If you use health Equity, here is the solution

https://ttlc.intuit.com/community/taxes/discussion/re-calculate-hsa-net-capital-gain-or-loss-for-ca-...

[Gheeree]

As per https://www.ftb.ca.gov/tax-pros/law/legislation/2021-2022/AB727-010322.pdf 

contribution with in limits and earnings on HSA amount are not taxable.

"Within limits, contributions to an HSA made by, or on behalf of, an eligible individual are deductible by the individual in determining adjusted gross income (AGI). Contributions to an HSA are excludable from income and employment taxes if made by the employer. Earnings on amounts in HSAs are not taxable. Distributions from an HSA for qualified medical expenses are not includible in gross income; however, distributions made from an HSA that are used for non-qualified medical expenses are includible in gross income and are subject to an additional tax of 20 percent."

Update: After reading other comments, looks like this is a bill that did not pass.

[Mike9241]

that proposed change in CA tax law was never enacted

earnings are not taxed

however

• For 2022, are employee contributions to an HSA still not deductible for California income tax.

if you make contributions through payroll deductions whereby box 1 of your w-2 is reduce for your contributions to an employer sponsored plan they become an add back for CA,