The message is correct. The IRS considers any contributions made by your employer OR made by you by means of a payroll deduction scheme to be "an employer's contribution".
The rationale is that both amounts are pre-tax. This amount is found with code "W" in box 12 on your W-2.
Since California does not allow the exclusion of HSA contributions from state income, the amount is added back to your federal income for purposes of the state.
The confusion is rooted in how the IRS uses the terminology,and TurboTax has to follow that terminology.
The problem is CA adds post-tax contributions also as State Income.
Ah. When you said "personal" contribution, I assumed you meant it the way that most taxpayers mean it - the amount of payroll deduction you made. But I guess you meant contributions you made directly to the HSA. I will have to build a test case, and report it if I can reproduce it. Thanks for the comment.
But if I am a resident of another state and only worked in California for a certain period of time, then the entire amount in box 12 of the W-2 should not be added back to my California state return. Only the portion for the period of time spent in California should be added back, right? Turbotax right now is adding back the whole portion. That seems wrong??
@araibeach - did you ever get an answer to this question as I'm running into the same issue. The CA state is counting my employer's HSA contribution from my W2 from Georgia and AFTER I left CA which I agree seems incorrect. Please advise if you got an answers on this...
Still Turbotax should be clearly indicating what employer contribution means on California tax screens help (It doesnt have to use IRS terminology on state associated help items). In fact turbotax does clarify on Federal screens help that W2 amount could be employee contributions as well as employer and IRS calls it employer contribution, however when user comes to CA forms it leaves users confused by referring just 'employer contribution' leaving ambiguity of interpreting CA rules. It should mention in the help that irrespective of employee contributions to amount indicated on W2, CA taxes entire amount.
I have had the same situation with my 2019 return. I can't find an answer to fix this. Did you ever get resoltuion?
I will be happy to help you with CA and HSAs, but I need for you to state your exact question - the comments above are all over the place.
How did you make you CA contributions (through your employer or directly)? Were you living or working in CA when you did this? What do you see on the CA return that concerns you?
@BillM223 Hello, I am not sure if the overall question was answered (or if it was re-stated as requested) but I will give it a shot - as I am in a similar situation.
I have 2 W2's for 2019....one when I was employed in Texas and one where I was employed in California.
For the job where I was employed and living in Texas: The W2 box 12 has a W code entry: "Employer Contributions to HSA" with an amount of $500.
For a little over a month in 2019 I was also employed in California at a different company. This employer did not contribute to an HSA, and the values in box 12 is completely empty.
I am working on my California state taxes, and they are pulling the box 12 value from the other/incorrect W2 when I was working in Texas - and I am not able to change that amount in TurboTax.
Is this correct?? If so, I owe around $500 in California state taxes....and only earned $1600 while there!
@kellibazanmiller wrote:
@BillM223 Hello, I am not sure if the overall question was answered (or if it was re-stated as requested) but I will give it a shot - as I am in a similar situation.
I have 2 W2's for 2019....one when I was employed in Texas and one where I was employed in California.
For the job where I was employed and living in Texas: The W2 box 12 has a W code entry: "Employer Contributions to HSA" with an amount of $500.
For a little over a month in 2019 I was also employed in California at a different company. This employer did not contribute to an HSA, and the values in box 12 is completely empty.
I am working on my California state taxes, and they are pulling the box 12 value from the other/incorrect W2 when I was working in Texas - and I am not able to change that amount in TurboTax.
Is this correct?? If so, I owe around $500 in California state taxes....and only earned $1600 while there!
Where did you live in 2019, what is your state of residence? Is your CA return for a full-year resident, a part-year resident, or a non-resident?
I have the same related question.
I live and worked full year in WA but have a rental home in CA. On my CA form, it counted the HSA employer and my contribution as income and also is asking me for the year’s interest, dividends and net gain/loss. Do I actually have to file that for CA given I worked entire year in WA?
@mlw530 wrote:
I have the same related question.
I live and worked full year in WA but have a rental home in CA. On my CA form, it counted the HSA employer and my contribution as income and also is asking me for the year’s interest, dividends and net gain/loss. Do I actually have to file that for CA given I worked entire year in WA?
You need to be filing a CA non-resident return to only report your CA in-state income, not all your income. Did you accidentally start a resident return? In the personal interview when you entered your WA address Turbotax should have asked if you lived in any other states and did you have income in other states, and should have opened a non-resident return for you.
@VolvoGirl are you familiar with this situation?
@VolvoGirl wrote:
Sorry no. Not multiple state questions.
I thought you were a California girl 🙂 Maybe I misremembered.
Hmm. Maybe @Hal_Al or @Critter-3 or @DoninGA
I'm not specifically familiar with CA forms or software.
But, from what mlw530 describes ("asking me for the year’s interest, dividends and net gain/loss"), it sounds like the typical state allocation screen. He enters 0 at each box (interest, dividends and net gain/loss), as the CA amount.
I am running into this same issue. I am married and filing jointly. My husband has an HSA account on his W2 (line 12). I do not have an HSA account on my W2. I work in both TX and CA so I need to file a CA state return. The amount of my husbands HSA contribution from his W2 is pulling into my CA tax return as being taxable. Is that correct?
I made a personal contribution (not through my employer) to an HSA, but California classifies the contribution as income. The contribution was not from my employer but from monies that have already been taxed. How do I show that I made a personal contribution to the HSA so it is not classified as income in California?
I assume that you are filing jointly in CA, right?
"so I need to file a CA state return. " - so aren't you filing a joint CA return? This makes it your (plural) return.
However, are you saying that none of your husband's income is CA source income?
If not, then his HSA contributions are not related to CA source income, so are not taxable in CA (please make sure that my assumptions are correct).
Non-residents of California are taxed only on California sourced income. Your husband's income are (apparently) not CA sourced income (please correct me if I am wrong)
However, your HSA contributions were not associated with that income.
Nonresident 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. This is in case you ever get a letter from the state asking about this adjustment.
The problem is that your HSA contribution reduced your federal income, so it must be added back to CA income to match the state's requirement that HSA contributions are not deductible.
If you look at your CA return, you will see that the federal income and deductions (including those on the second half of Schedule 1 (1040)) are carried over to California. This means that your personal HSA contribution which was deductible on the federal return (look at line 12 on Schedule 1 (1040) needs to be accounted for on your CA return to make sure that it is not deductible in CA.
So the software is working as it should.
Thank you for your response. For clarification, my husband and I reside in California. All of our income has been acquired in California.
Based on your additional response, it appears that the turbo tax software is correctly classifying the HSA personal contribution (monies that have already been taxed) as a Federal credit and as a California State income source.
Seems strange that California would tax HSA personal monies contribution (already taxed monies) as income. Seems to be double taxation??
Any additional thoughts?
Ah, thank you for the update.
In this case, all of the HSA contribution is being added back to CA income, and this is correct.
Yes, I know that you said that this contribution was paid with after-tax dollars, but it wasn't - because when you entered this contribution into TurboTax, it was placed on line 12 of Schedule 1 (1040) as an adjustment to gross income (a deduction in this case). So the contribution is no longer after-tax from the IRS' point of view.
And since the contribution is part of the federal AGI (Adjusted Gross Income) as a deduction and since California starts with federal income and deductions, it needs to be added back on the state return.
This HSA contribution appeared on line 12 of Schedule 1 (1040), right? In that case, the same contribution must be a add-back on the CA return.
P.S. "is a Federal credit" - the HSA contribution is an adjustment to gross income, or, loosely speaking, a deduction, not a credit.
@CA-deedee wrote:
Thank you for your response. For clarification, my husband and I reside in California. All of our income has been acquired in California.
Based on your additional response, it appears that the turbo tax software is correctly classifying the HSA personal contribution (monies that have already been taxed) as a Federal credit and as a California State income source.
Seems strange that California would tax HSA personal monies contribution (already taxed monies) as income. Seems to be double taxation??
Any additional thoughts?
It's not being taxed twice. It's being added back and taxed once.
If you have employer or employee contributions by payroll deduction, they are recorded in box 12 of your W-2 and are not included in your W-2 box 1 taxable wages. California adds them back to your taxable wages so they end up being taxed once.
Then, if you made contributions outside of payroll deductions (direct out of pocket contributions) those are subtracted on the federal return and not subtracted on the CA return.
However, it is important not to double up on your HSA contributions. Box 12 of your W-2 lists all contributions made by payroll deduction, both free employer money or match and your payroll contributions. (The law considers that you enter a salary reduction agreement with your employer that reduces your salary and puts the money in the HSA instead so its all "employer contributions.") Later in the program when you are asked about additional contributions, only enter contributions made out of pocket not through payroll. (If you enter your employer contributions in this section, you will get an illegal double deduction on your federal return and you will be double taxed in CA.)
Thanks for the response. The TT message should be clarified to "If you or your employer contributed...." to avoid the uncertainty.
If you were a resident of another state (say Michigan) and then became CA Resident, you should have a separate W2 for the
1. Michigan (the other state) and
2. W-2 for CA,
Each state should have treated the HSA according to their State Laws. So, only the HSA amount when earned Michigan Wages should be on Michigan W2. Only the HSA amount when earned CA Wages should be on CA W-2. I see payroll companies get this wrong all the time.
So, the CA W-2 should only have HSA Contributions add back while you had CA Wages.
So, W2 for CA is ONLY CA Wages and ONLY deductions while in CA.
If your Payroll Dept messed up the W2 and included HSA contributions for whole year, that is a different story.
See below for some other comments I think a lot of us are missing!
EMPLOYER CONTRIBUTIONS = ONES ACTUALLY PAID BY EMPLOYER
----------------------------------------------------------------------------------------------------
Also, almost ALL Payroll company W2's are coming out incorrect for CA Taxable wages.
Why? Because the Employer actual Contribution to the HSA (not the Employees contributions to HSA) is NOT included in Federal Wages (Taxable or Non Taxable) ON THE PAYCHECK STUBS .
So the HSA Contribution from EMPLOYEE (ONLY, Missing Employer payments to HSA for Employee) is added back to CA Taxable Wages and is MISSING the Employer actual contributions to the HSA that they paid on behalf of the Employee. Therefore, the CA Taxable Wages is still incorrect on W-2!
You will find this out when you see the HSA Contributions in Box 12 Coded W is greater than the Difference between the US Taxable and CA Taxable Wages. See Example below.
For example: (I'm using actual Client Data for these examples below from 2020 Returns)
----------------------------------------------------------------------------------------------------------------------------------------
Employee Contributions to HSA for 2020 $4000
Employer Contribution to HSA on behalf of Employee for 2020 $ 500
---------------
TOTAL HSA Contributions in Box 12 Coded W $4,500 This is correct!
Federal Taxable Wages $70,000
CA Taxable Wages $74,000
-----------------
Difference is the $4,000 Employee Contributions above ONLY
Oops this is missing the EMPLOYER $500 above; see below
Missing is the:
Employer Contribution to HSA $500
------------------
TOTAL $4,500 Matches above
Why does this happen? Well ,when I spoke with an ADP Payroll Rep for the Company's payroll, they stated that since the Employer payment of $500 is under a Cafeteria Plan, the amount DOES NOT GET TAXED FOR CA and they do NOT have to include this amount in CA Taxable Wages. SO THERE!
This is incorrect. So, if you pickup the CA Wages amount ONLY and do not include the additional $500 of wages for CA Taxable Income (see above), the CA Return is still incorrect.
Stay Well and Healthy;
P.S. I was able to partially get one Company to correct this last year, but only partially...