Are medical and dental expenses paid with HSA deductible on Arizona state return?

[phoenician]

All my medical and dental expenses are paid from HSA (with exeption of mileage). I understand that medical and dental expenses can not be deducted on federal return. Can they be deducted on Arizona state return? Thank you

[Opus 17 · Accepted solution]

The only way you could deduct medical expenses paid from an HSA on your Arizona State tax return is if the money that you deposited into the HSA was taxable on your Arizona State tax return.

 HSA contributions are subtracted from your W-2 box 1 wages if you make them through your employer and are never taxed.   If you make after-tax contributions, they are deducted on the front page of your tax return before your adjusted gross income or AGI is calculated.   Most states start with your federal AGI is the basis for your state tax return.  Unless Arizona has some special procedure to add your HSA contributions back to your Arizona taxable income, then you cannot deduct medical expenses paid for with an HSA as Arizona medical expenses.  You simply can't deduct money out of your income if it was never in your income in the first place. 

[DS30]

Yes but only if your HSA contribution were originally taxable in AZ.

Dental expenses, eyeglasses, hearing aid, medical mileage, medical and dental insurance co-pays and out of pocket medical expenses are all deductible. These expenses are deductible on your Arizona tax return even if they may not be on your federal return.

Be sure to document everything. Keep your receipts. 

[edited 2/18/2018 - 8:31PM PST]

[joe002]

So, I contributed my entire HSA for 2018 from after-tax contributions (I didn't deduct anything from my employer (W-2)). I also paid all of my medical/dental from my HSA. It seems that I can deduct all of my HSA expenses on my AZ return, correct?

[Opus 17]

Not necessarily.  Your HSA contributions are a federal tax deduction.  That makes them tax-free just after the fact instead of at the time of the contribution).

You will need to check your AZ return, or ask an AZ tax specialist via customer support.  Most states take the federal tax return as their "base" and then add or subtract state-specific items.  For example, California does not allow a state tax deduction for HSA contributions.  So the California state tax return starts with the federal base return and adds back the HSA deduction (either by adding the HSA contributions from your W-2 or adding back the HSA deduction.)  However, New York allows an HSA deduction, so it starts with the federal return as its base (which already has the HSA contributions pre-tax or deducted) and does not add them back.

So it depends on whether Arizona adds that after-tax deduction back as a state addition.  If yes, then you can list the expenses as an itemized deduction since they were paid with money that is taxable in your state.  But if AZ allows the HSA deduction (does not add it back) then you can't deduct your expenses.