California HSA reported contribution

[juki262]

Federal return shows $4200 HSA contribution. $1200 was contributed by employer and $3000 was pre-tax contribution by employee. On California return why is the whole $4200 reported when employer only contributed $1200. I understand why IRS lumps them together as it was a pre-tax contribution but does California also lump them together?

[dmertz]

California does not permit you to treat any HSA contributions as pre-tax.  Because the entire $4,200 is federally pre-tax (not included at all in your federally taxable income), the entire $4,200 must be applied as an addition on your California income tax return.

Note that the amount on CA Form 540 line 12 is not used in determining your CA taxable income.  The calculation begins on Form 540 line 13 with your federal AGI and the $4,200 is added in on line 16.

[curiouspat]

Hello,

This makes sense but I have a similar situation that I want to inquire about.

I was a part-year resident of CA in 2019. I moved out for a new job in a different state and obtained its residency. At my new employer, I started contributing to HSA as part of its benefits program. So, my contributions to HSA were made with non-CA income and while I was non-resident. As I am filing taxes as a part-year resident, I should not have to back pay CA for HSA contributions I made with non-CA income and as non-CA resident, right?

How can I do that in Turbotax Premier?

[BillM223]

Non-residents and part-year residents of California are taxed only on California sourced income. 

However, your HSA contributions were not associated with that income since you were out-of-state when the contributions were made, i.e., the HSA contributions are not associated with your California source income.

Nonresident and part-year California residents often find that TurboTax adds back all the HSA contributions, even ones made in another state.

There is no good way for TurboTax to know in which state the contributions were made in, so the taxpayer needs to manually adjust the California state income to remove the HSA contributions that were added back while the taxpayer was not in California.

***To make the CA adjustment***

Go to State Returns, and navigate to your California return.

In Income and adjustments, proceed through the interview. You may see a screen announcing that HSA contributions are treated differently in California. Just hit Continue.

You will notice on the main page ("Here's the income that California handles differently"), the first line item is (likely to be) "Health Savings Account (HSA) Contributions". Here TurboTax notes that the amount of your HSA contribution has been added back to the California return.

NOTE, despite the Edit button, you can't change this here.

Scroll down to Miscellaneous Adjustments on this screen. Click Start for Other Adjustments to Income.

Enter in the left column "adjustment for out-of-state HSA contributions". Enter in the middle column (i.e., a subtraction) the dollar amount of HSA contributions made out-of-state. This will be subtracted from your California state income.

Make a note on your copy of your state tax return (because, of course, you are going to save a copy, right?) that you made this adjustment because TurboTax added back all the HSA contributions (even ones made while a non-resident), and you needed to counteract this if none of the HSA contributions are associated with California source income. This is in case you ever get a letter from the state asking about this adjustment.

[ibcarolek]

Write your CA representatives!  California AB2384 "Income tax: health savings accounts" didn't pass - it was written to make HSA non-taxable like Feds, but it died 9 months after being submitted.  Very, very sad.

[textaxes]

I'm not sure you need the adjustment. When I did this, it asked me to enter the California amount of my HSA employer contribution in the "review" step (it said something like: "this field must have a value"). I was able to enter zero there since it's not California sourced income.