Tax Treatment of Health Savings Accounts (HSA) [2020]

Tax Treatment of Health Savings Accounts.

HSAs are confusing as is, but in California, they can be even more complex. The rules are different for the IRS and for the Franchise Tax Board. Let's take a look at how it works:

Health Savings Account (HSA) Contributions

Differences Between Federal and California Law

Contributions: Federal law allows taxpayers a deduction for contributions to an HSA account. Contributions made on behalf of an eligible individual by an employer are excluded from W-2 wages. California does not conform to this provision.

What to do for California

Enter the amount from Schedule CA (540 or 540NR), column A, line 12, in column B, line 12.

Enter the amount of any employer contribution from federal Form W-2, box 12, code W on Schedule CA (540 or 540NR), line 9, column C. 

Differences Between Federal and California Law

Distributions that are not used for qualified medical expenses are includable in federal gross income. The amount taxable under federal law, less interest and dividend income previously taxed by California, is not taxable by California.

What to do for California  

Enter the required adjustment from Schedule CA, line 21f, column A, in line 21f, column B.

For more information, please see FTB Publication 1001 Page 10