Turbo says HSA earned income from interest, dividends or capital gains is taxable income in CA." I never received an HSA gains tax form from Fidelity. Do I still report?

[damica]

HSA Earnings in California: Turbo says, "If your HSA earned income from interest, dividends or capital gains, that income is not taxed by the feds. However, CA considers it taxable income." I never received a tax statement from my HSA Provider (Fidelity) with a summary of gains. I also never used my HSA - my employer contributed to it but I did not. Do i need to calculate individual monthly dividend/gains and report it on my taxes, even though I (a) never received a tax form and (b) never used the money? 

[BMcCalpin · Accepted solution]

Yes, California treats an HSA as a regular investment account, so you have to report all interest, dividends, and capital gains (if any) in the account on your California return.

Since only two states do not allow the tax-advantaged status of the HSA, most of the customer support people at a company like Fidelity may not even know what you are talking about when you call them about taxable interest in an HSA.

You may be lucky and have only interest amounts on your HSA statements. If so, just add them up (or look to the last one to see if there is a summary) and report that on your CA return. Some banks and institutions allow you to invest in stocks and mutual funds once your account gets over a certain size, so those accounts might have dividends and capital gains.

If your online account at Fidelity doesn't show this, then you will need to call someone at Fidelity and ask for a supervisor who is familiar with how California and New Jersey handle HSA acounts - there's got to be someone there who knows this. 

[peterBear]

From 2019 CA (540) Instructions, page 2 under Line 2 - Taxable Interest:

"Interest or other earnings earned from a Health Savings Account (HSA)
are not treated as taxed deferred. Interest or earnings in a HSA are
taxable in the year earned."

I have not seen the 2020 version, but I assume it is the same in this respect.