Question

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.

Forum|Forum|6 years ago
June 6, 2019
2 replies
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This was a personal contribution to HSA not employer contribution.

TurboTax Deluxe Online

The message is correct. The IRS considers any contributions made by your employer OR made by you by means of a payroll deduction scheme to be "an employer's contribution".

The rationale is that both amounts are pre-tax. This amount is found with code "W" in box 12 on your W-2.

Since California does not allow the exclusion of HSA contributions from state income, the amount is added back to your federal income for purposes of the state.

The confusion is rooted in how the IRS uses the terminology,and TurboTax has to follow that terminology.

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R

rohitshetti

The problem is CA adds post-tax contributions also as State Income.

T

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?

B

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.

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B

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.

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