For CA how to properly handle HSA excess contributions in 2019 distributed in 2020

[sfdave]

Do I need to do anything for CA to handle HSA excess contributions in 2019 that I corrected with a distribution in 2020?

I originally contributed $7000 to my HSA in 2019, but was actually limited to $1750. I distributed the $5250 in 2020 and reflected that my 2019 Fed in TurboTax. However, TurboTax still added all $7000 to my CA income.

My guess is that is to be expected, since CA treats it all as income. So all $7000 is income. And the distribution will just be ignored by CA (since it was taxable all along). Does that sound correct? Thx!

As additional background, I originally contributed $7000 to my HSA in 2019. That is what is reflected in my 2019 W-2 Box 12 W and 2019 5498sa. However, I later discovered I was limited to $1750 due to getting married in March and my wife having an FSA. I removed the $5250 excess in this calendar year on 3/10/20. I told TurboTax I only had three months of eligibility, so it automatically added the $5,250 to Other Income on line 8 on Schedule 1 (1040). Details are in https://ttlc.intuit.com/community/taxes/discussion/re-i-removed-a-2019-hsa-5250-excess-in-this-calen...

[BillM223 · Accepted solution]

It has been a while but as I recall, the $7,000 will be added to CA state income, and in another place, the $5,250 will be subtracted from CA state income. The net result is that CA state income should be $1,750 higher than federal income (assuming that there are no other adjustments).

Did you get a 1099-SA showing the $5,250 distribution for the excess contribution? That may be the trigger for the $5,250 subtraction in CA.

[sfdave]

We didn't receive the 1099-SA yet because we just did the distribution in March 2020. So we will not get it until next year.

[BillM223]

Well, please look to see if the $7,000 was added to CA income in one place and the $5,250 was subtracted from it - this is on CA 540 CA as I recall.

[sfdave]

Thanks. How do I view CA 540?

[BillM223]

Are you using the Online product? You can't until you pay for the product. Something to consider.

[sfdave]

Yes, Online. I have paid for the product.

[BillM223]

Yay! Now in TurboTax in your return, look to the left at Tax Tools. Click on it, and Print Center should appear below that. Click on Print Center, and create yourself a PDF of your return - actually, it may ask you if you want to view your return, which is OK, but making a PDF means that it doesn't go away if you type something wrong.

Look around for that $5,250 - actually, you might try to do a Search using Acrobat's Search feature.

[sfdave]

Thanks! I do see the $5,250 now in CA 540 Line 8.

And it makes sense to me now also.  The $7000 is added to AGI for CA income since its the total HSA amount which normally Fed AGI would not include at all. But we also have to subtract the $5,250 since Fed AGI does  include that in my case.

[BillM223]

Victory!

I am glad that you found this, because I would have had to start over with a fresh test to reproduce this...and things are a little busy right now.

Thanks for finding it!