Partial Year CA Resident-HSA Contribution While Non-Resident 2018 Tax Year

[RegularGuy]

I was a partial year resident of CA and WI. While a resident of WI and employed by a WI employer, I made $1060 in HSA contributions.

CA taxes HSA contributions, unlike the Federal Govt. Turbotax automatically added the amount to my income on my CA return. I'm looking for where I should subtract that amount from my net income for my CA return in TurboTax, since the income from which the contributions were made was not accrued in CA.

Do I subtract it (along with interest earned on the HSA "out-of-CA") in the section "Enter any Other Adjustments to Income" (see attached image) which is found beneath "Other Adjustments to Income" on the Adjustments screen?Main adjustments screen-CA return

[DanielV01 · Accepted solution]

No adjustment is needed.  The reason why you see this information is how California calculates non-resident tax.  What they do is determine how much tax you would pay on all of your income using California income rules (including the HSA as taxable income), and then pro-rating that tax to the amount of income actually earned in California.  

Using that formula, the HSA is not taxed, but is used to help determine how much tax you should pay to California on the income you actually earned in California.

[RegularGuy]

Thank you, it makes sense now. Same for IRA distribution received as income in another state. The wording is confusing on the state tax form instructions.