Allocating personal contribution to HSA by states - part year resident IL and PA

[GS25]

I am trying to figure out which state to allocate personal contribution I made to my HSA for 2020? 
There are two aspects that apply to my case - 

1. I was part year resident of IL and PA - roughly 6 months in each state. I earned all my income from IL. 
2. I was only eligible to contribute to HSA for first 3 months of 2020. All of those 3 months, I was a resident of IL. I had family coverage and so I was eligible to contribute a total of $1775 ($7100*3/12) towards my HSA in 2020. 

I did not contribute the full $1775 through my paychecks as employer contribution. I contributed the remainder eligible amount as personal contribution in Jan 2021 to count towards 2020.

TurboTax is deducting the entire amount from both states - IL and PA - is that correct? If not, which state - IL or PA - should I deduct this from? And how much should I deduct from each state? 

Should it be deducted from IL since I was only eligible to contribute to HSA while I was a resident of IL OR should I deduct it from PA since the actual contribution happened while I was a resident of PA? 

[MarilynG1]

No, you are correct that the amount of your HSA contribution should not show on both state returns.

 Since this was a personal HSA contribution you made, you could manually split the amounts between the two states, or claim the entire amount on either your part-year Illinois or Pennsylvania returns, whichever is better for you.

Click this link for detailed info on Splitting HSA on Part Year Resident Returns. 

[GS25]

Thank you @MarilynG1. I am unable to edit the amount for my respective state taxes. I am using TurboTax Deluxe. Could you guide me on how to remove it from one of the state taxes?

[BillM223 · Accepted solution]

Any HSA deductions that were through your employer are a no-brainer - they follow the income they are applied against. In this case, they follow the W-2 Wages for each state.

Illinois and Pennsylvania both ask (in different ways), for how much income belongs to each state. When you enter that amount, the Wages numbers include the code W in box 12 amounts for the HSA deductions. So these HSA deductions are allocated correctly automatically.

Your concern is about the personal HSA contributions. If you do not do anything, then this amount shows up on the Illinois AND the Pennsylvania returns.

Unfortunately, TurboTax does not have any way to directly adjust these amounts.

What you should do is let Illinois have the entire amount for the personal HSA contribution (since you made it while you lived in IL), then make an adjustment for Pennsylvania to remove the effect of the personal HSA contribution on the PA-40.

You would do that by getting into the Pennsylvania interview, and proceeding to the screen that reads "Any Other Miscellaneous Compensation". Answer "YES".

The next screen reads "Miscellaneous Compensation". Here, if married, pick the person to whom the HSA belongs, enter "HSA adjustment" for Payer, and the amount of the personal contribution on the federal return.

On the next Miscellaneous Adjustment screen, enter the federal amount of the personal HSA, and the same thing for PA amount. Leave PA withholding blank.

The net effect of this is to add this amount to Pennsylvania income, so that this amount is subtracted on line 10 of the PA-40, it's as if there was no personal HSA deduction for PA, leaving it all allocated to IL, which, as it turns out, is as it should be.

Please write down what you did and why and put the note in your tax file in the very unlikely case that anyone ever asks.

[GS25]

Thank you @BillM223 . This is very helpful. I have been fussing over this for almost a week now!!

I actually want this to be deducted from PA and not from IL. How would I remove the contribution from IL and keep it in PA? Once again, thanks a ton!

[BillM223]

First of all, I did not find a way to do the reverse: put it all on PA and none on IL. That is, I didn't see a way to adjust the IL numbers in TurboTax, although I guess you could look to see if you could make an income adjustment in Illinois in a similar way as for PA (I didn't look for this possibility).

Second, you said "I was only eligible to contribute to HSA for first 3 months of 2020. All of those 3 months, I was a resident of IL. " This means that you very likely did contribute to the HSA (personally) during your residence in Illinois. This means that the personal HSA contribution belongs to Illinois, not Pennsylvania.

I was happy to see that I could suggest the most reasonable course to you with a method that would work with the existing TurboTax.

I think it would be difficult to explain to the PA authorities why you should be able to deduct your personal HSA contribution in PA when you weren't a resident when you made the contribution.

Make sense?

[GS25]

Thanks again @BillM223. I will poke around to see if I can possibly change the IL income in a similar manner. 

As I mentioned, I contributed the remainder eligible amount as personal contribution in Jan 2021 to count towards 2020 - and at this time, I was living in PA.

I can't find the thread but I saw on a post that since the contribution was made in 2021 who is say it is from the portion of the money I earned while being an IL resident or a PA resident and so it's better to deduct it from the state where you were living when the contribution was actually made - which in my case is PA. It is for this reason I was hoping to deduct from PA and not IL. Appreciate your thoughts on this!

[BillM223]

@GS25

My apologies, yes, you did say that...

Good luck with finding something. Instead of adjusting a subtraction, you may have to adjust an income item, then write yourself a big note why you did this.