My California state tax return added my HSA contribution to income because, as TT said, CA doesn't allow "employer" contributions to HSA as deduction - it was my cont.

[Hal_Al]

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.

[Taxhelpneeded2]

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? 

[CA-deedee]

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?

[BillM223]

@Taxhelpneeded2

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.

[BillM223]

@CA-deedee

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.

[CA-deedee]

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?  

[BillM223]

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.

[Opus 17]

---

@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.)

[BLEEP33]

Thanks for the response. The TT message should be clarified to "If you or your employer contributed...." to avoid the uncertainty.

[CJHCPA]

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...

[CurleyQ2]

I am confused over this CA noting HSA account - but I do not have one. I have box 12a G Contributions to your 457(b) plan and 12b DD Cost of employer-sponsored health coverage. I have a FSA so why does CA  state tax returns on TT say I have an over contribution on my HSA account?????????

[AbrahamT]

Code DD amounts are for informational purposes only—they don't affect the numbers in your tax return. Nevertheless, you should enter the Code DD and the amount of your employer-sponsored health coverage plan if you see it on your W-2. They are FSA's not HSA. FSA's are employer sponsored health plans. HSA's are plans that are owned by you.  

Code G. Non-taxable elective salary deferrals and non-elective employer contributions to a 457(b) retirement plan. Code H. Non-taxable elective salary deferrals to a 501(c)(18)(D) tax-exempt plan. This amount is included in box 1 wages. It is a retirement plan, nothing to do with a health plan.

Code W amount from your W2 wages, represents deductions made by both your employer and yourself through payroll deductions to a HSA. If you made your own personal deductions as well.The maximum contribution for an HSA in 2022 is $3,650 for an individual ($3,850 for 2023) and $7,300 for a family ($7,750 in 2023).23 The annual limits on contributions apply to the total of the amounts contributed by both the employer and the employee. Individuals age 55 or older by the end of the tax year can make catch-up contributions of an additional $1,000 to their HSAs.4 . To correct the overcontribution, see HERE https://ttlc.intuit.com/community/tax-credits-deductions/discussion/hsa-overcontribution/00/2202092

for further instruction  

[rherman11]

Every year the HSA language is confusing - "employer contributions" means both employee AND employer contributions.  Why doesn't TT just say this in the help guides!

[jc95125]

Thank goodness for tax periods ending after January 1, 2022, the FTB amended the law and is now conforming to IRS Federal law.

[teberlein]

Exactly - this kind of ambiguous wording exists in multiples places in TurboTax and wastes so much time.  This is my 7th yr using TTO, but will looking for a different solution next year.