Total Adjusted Income for W2s is higher than combined Amount of W2s

[ragavi98]

Hi I've been working in California this year and received 2 W2s. The combined amount was Y. However when filing state taxes there's a section that states Total adjusted income from W-2s. This amount is greater than Y. Let's call this amount Z = Y + X. I lived in 2 states last year but I did not earn any income in the previous state. 

1) How is the total adjusted income from W-2s greater than the combined amount from both W2s? On form 1040, it shows that I have other income for X amount on line 8. This matches the HSA amount on my W-2 form under 12b.  For 2021 I contributed .5X to my HSA and my employer contributed .5X. My employer contributed .5X for 2022 too. Do I have "Other income" on line 8 as a result of the employer and my contribution to the HSA for 2021? In turbo tax it shows the total adjusted income Z from W-2s and asks "How much of the Z did you earn while living/working in California?" What amount would I put in for that? 

2) I contacted my HSA custodian and asked for a withdrawal of excess funds as per this post for my HSA:  https://ttlc.intuit.com/community/taxes/discussion/re-hsa-form-family-plan-and-self-only-plan-for-pa... and also marked on TurboTax that I'd be removing those funds by April 18th. I need some help correcting some entries here. I'm unsure of how to go back to the part where it asks to indicate my coverage under a HDHP during 2021. Self-only and Family should not be checked according to the post on Form 8889. What section of TurboTax can I go to in order to change this? 

3) For 2021 would I mark Yes I had a HSA but no I do not have a HDHP? Is it possible to do that and which form would that pertain to?

[RaifH]

1) The Other Income on Line 8 is the amount that was contributed to your HSA, which includes both your contribution and your employer's contribution. You are not allowed any tax benefit from contributing to an HSA if you do not have a high deductible health plan. Since the money that was contributed was not taxed prior to the contribution, it is now being taxed. If all your income was from this job while in California, all of it would be taxable to California.

2) If you did not have any health coverage, you can go here to change it in TurboTax:

1. Go to Federal > Wages & Income > Less Common Income > 1099-SA, HSA, MSA and click Start/Revisit.
2. Make sure you have HSA selected.
3. If you made any withdrawals from your HSA, you should receive a 1099-SA and answer Yes to Did you use your HSA to pay for anything in 2021? Otherwise, select No.
4. Assuming you did not inherit this HSA, select No.
5. Under Let's enter your HSA contributions your employer amount should already be in there from the W-2. Unless you made additional contributions, leave Any contributions you personally made blank. 
6. Answer the questions on the next two screens, then make sure you answer the question related to your HDHP correctly on the next screen. If you never had an HDHP, you can't contribute to an HSA without facing penalties on your tax return. In that case, answer No, I did not have coverage on the Were you covered by a HDHP in 2021?
7. Answer whether you overfunded in a prior year (probably not). Then you can withdraw the excess contribution on the next screen.

Even after withdrawing the excess, you will still have the amount from Code W on Box 12 of your W-2 added to other income on your tax return. You just will not pay any penalties on the excess contribution. 

3) Yes, if you did not have an HDHP that is how you would answer the questions. You can have an HSA without an HDHP, you just are not allowed to contribute any new money to it for any month you were not covered by an HDHP. You may still take distributions from it and will not be penalized for that as long as the distributions are used for qualified medical expenses. The information would show up on Form 8889 which calculates your maximum allowable contribution

[ragavi98]

Thank you for this clarification! 

I still have a question about if the total adjusted income for W2s is showing as Z , the sum of the incomes on my W2s is X, and Z = X +Y where Y is the other income that was contributed to the HSA, for the question "How much of the Z did you earn while living/working in California?" what amount would I put? Also I mentioned I would withdrawing the excess money in the HSA so I won't be taxed 6 % on it for how .

[BillM223]

"for the question "How much of the Z did you earn while living/working in California?" what amount would I put?" - Z

"Also I mentioned I would withdrawing the excess money in the HSA so I won't be taxed 6 % on it for how " - California won't care since it doesn't know what HSAs are...