How do you report earned interest/dividend on HSA account for California state tax? Our HSA provider doesn't produce form 1099. Should we be looking for a different form?

[BMcCalpin]

Form 1099-SA is only to report distributions out of your HSA. If you didn't take a any funds out of the HSA to pay for medical expenses, then you would not receive a 1099-SA.

You need to either go online at your HSA administrator's website (most of them have one) and look at your account, or call them. Note that only 3 of the 50 states require that HSA contributions (and the earnings) be added to state income, so don't be surprised that your HSA administrator doesn't report dividends and interest easily - few of their customers need this.

[navycompsci]

I had to go through each monthly statement for the year and total up the dividends and capital gains from mutual funds, and also the interest from the savings account.

[kinmanngcmk]

I only purchase mutual funds in my HSA and I don't sell the funds (and i live in California).

Do i still need to report earning e.g. interests and dividend from HSA each year if i don't sell them within the year?   I thought HSA is like a retirement account therefore report of earning can be deferred, i.e.  only report when funds are sold ... , please correct me if wrong.  Thanks.

[BillM223]

California treats Health Savings Accounts as ordinary investment accounts. This has multiple consequences.

• Contributions to an HSA are not deductible on the CA state return.
• If the HSA contributions were "employer contribution" (code W in box 12 of your W-2), then this amount is added back to CA state income.
• If your HSA contributions were "personal" (i.e., directly to the HSA, not through your employer), this is also not deductible, but listed on a different place on the CA return.
• The add-backs for contributions to the HSA are normally handled automatically.
• Earnings in the HSA are reported as income on the CA return.
• The reporting of the HSA earnings you have to do manually.

The mutual funds in the HSA are taxable to the same extent as they would be on the federal return outside of an HSA. Mutual funds typically generate taxable income even if you don't buy or sell any shares in the fund, because of interest and dividends and because of stock transactions by the fund's managers.

So, it's a pain, but you need to contact the HSA custodian and find someone who understands that you have to report the earnings from the HSA (only CA and NJ require this).  (***NOTE** the answer above predates this year, because now there are only two states like this).

Just to be clear, this applies only to your state return. Your federal return treats the HSA as you think it does - earnings are not reported because they are deferred.

[bkseller]

For CA HSA tax reporting purpose:

If you receive dividends but they are reinvested back into the mutual fund (DRIP) or the fund distributes capital gains and both are automatically invested back into the fund, do you include the dividends and the capital gain distribution as income in the year received or do you not report them because they are unrealized gains?

Thanks

[bkseller]

Hit post too quickly

Or do you just report them as gains/loss when you close out the position

[DaveF1006]

No, you will still report these as dividend income even though you did not receive the money. This Turbo Tax link does a great job of explaining this.