EE & ER HSA Contribution via payroll and outside payroll for CA state tax

[Balaji]

My employer contributed $X towards HSA (reported in W-2) and I contributed $Y (outside paycheck) in 2017 towards 2016 tax year. $X+$Y = Allowed Limit & $X > $Y. For California tax return, TT does addition of $X and subtraction of $Y to taxable income, instead of addition of $X & $Y. Why?

[JShaw1 · Accepted solution]

California adds back the employer contribution for your HSA and subtracts your additional contributions from the adjustments so that it also is an addition to income (reduces a subtraction). Both amounts get added back into the federal amounts -- one just shows as an addition to income and one is a reduction of a deduction.