I invested in FUAMX in my HSA in CA which is state/local tax exempt as it invests in treasury (99.16%). CA State Tax - Since its tax free, no action needed?

[samba50]

Hello, if I understand correctly interest/dividend in an Fidelity HSA account is taxable in California. I invested in FUAMX (Fidelity Intermediate Treasury Bond Index Fund) which I believe is state/local tax exempt as it invests in treasury. As per the monthly fact sheet (FUAMX - Fidelity ® Intermediate Treasury Bond Index Fund | Fidelity Investments), 99.16% is US treasure. Can someone please confirm below that my understanding is correct? Federal Tax - I don't need to declare anything since HSA is tax exempt. Also - I did not receive any 1099 from Fidelity. CA State Tax - Since I invested in FUAMX, do I need to make any adjustments in my state tax return for the interest received in 2024? I assume no since FUAMX consists of US treasury (99.16%).

[BillM223 · Accepted solution]

If all the income in your HSA is from tax-free sources, as yours appears to be, then you do not have to report any income in the investment account that California thinks your HSA to be. That is, when CA asks you for the ordinary income and capital gains from your HSA investment account, you just enter zero.

However, you may need to make adjustments on your CA return for HSA contributions and distributions. You did not discuss contributions and distributions to/from your HSA account, but if you had any, then you will have to make adjustments (although TurboTax normally will have done them for you). The tax consequences of the contributions and distributions are the same for CA whether or not the HSA is invested in tax-free items or not.

[samba50]

Thanks for your reply. 

Regarding HSA contributions, yes TurboTax automatically included $8300 under "Health Savings Account (HSA) Contributions" for my California tax return so I guess I am all set.