California does not tax the HSA contributions you made prior to moving to California. However, California uses all of your income to determine California tax by California law. Since California does not allow a deduction for an HSA, it pretends that all of your income (including the HSA contribution) is taxable in California, computes the tax, and then prorates your tax to the amount of income you actually earned in California. Thus, while your HSA is not taxed in California, it is factored in to calculate California tax
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