I was a partial resident for both California and Georgia in 2022. When filling out the CA state return and am allocating income between California and other states, I arrive at a screen that says "Tell us about your California Income" and "Total adjusted income from W-2s". It looks like that total is the sum of my two W-2s (I have one from Georgia and one from California), and also including the payroll HSA contribution. If I subtracted my GA W2 amount from this sum, I would get California attributable income. Looks like it adds up so far.
My question is this. In addition to payroll HSA, I also had a individual/direct HSA contribution that was not through my employer (and not reported on box 12W of the W2). I do not see anywhere that my *direct/individual* contribution to HSA was added back to CA income. I am not sure if this was done behind the scenes or if it's a manual adjustment I need to make. Do I need to take any further action in this case, or is the amount automatically included?
The reason I ask is because, as a partial resident throughout the year, though I made the direct contribution while living in CA, it was not actually all sourced through CA income because I pulled the direct contribution from my prior savings account. So I would like to be able to allocate a portion of the HSA direct contribution to Georgia to reduce Georgia income/taxes (which I am able to do on the Georgia form...) and then reduce the California HSA Addback by that amount. This would have the effect of reducing my tax liability in both states, and I feel like it would still accurately reflect where the income was sourced from (prior GA income vs. CA income). How should I accomplish this? Is it possible?
First, the HSA contribution that is with code W on your W-2 and any other employer contribution that was not part of the code W amount will appear on the screen "Here's the income that California handles differently" early in the CA interview. This amount appears (unless you change it in the CA interview) on form CA (540NR) on line 1h, column C.
If you made any contributions directly to the HSA custodian (not through your employer), this amount appears on the same form, line 13, column A.
All three of these amounts will end up on the 540NR line 16 to be added back to CA taxable income.
If the W-2 with the code W amount are all CA source wages, then we don't need to adjust the code W amount - it will be added back to CA income as it should be .
"I do not see anywhere that my *direct/individual* contribution to HSA was added back to CA income. " - Take a look at form CA (540NR), line 1h, column C, and see if your direct HSA contribution is there (it should be).
"The reason I ask is because, as a partial resident throughout the year, though I made the direct contribution while living in CA, it was not actually all sourced through CA income because I pulled the direct contribution from my prior savings account. " I don't believe that you will be able to split such hairs. I imagine that CA's attitude will be: "you were in CA when you made the contribution on that given date, so CA will add it ALL back to CA income". The state is not going to parse where the money came from, only that the contribution was made on such and such a date.
Thanks for the detailed response. I think this makes sense. I did some more digging and discovered that as a partial resident, California uses like a proportion of CA w2 income compared to all of your income (I'm not explaining this well), so the splitting sources for HSA wouldn't affect anything on my CA return anyway.