How to add HSA interest to California taxes

Question

I made some income in my HSA account which is taxable in CA. It needs to be reported on the schedule CA (540), Part I Income Adjustment Schedule Section A – Income number 2. column C. I just need to know where to enter the amount in freetaxusa in order to get the number there.

I tried adding it under "CA Uncommon Tax Law Differences" in the "Any other amount you need to include in your California income" field but it showed up in the wrong place, displayed in schedule CA (540), under Part I Income Adjustment Schedule Section B Additional Income number z column C.

I don't think it's possible with this software currently, but I would love if someone that knows how can show me.

MatthewD · Answer

Hi Neigh8,

We do support entering HSA interest and dividends on the CA Adjustments state page.  However, you need to first answer YES that you have an HSA account on the federal Health Savings Account (HSA) (1099-SA) page. (Deductions/Credits > Other Deductions > Health Savings Account (HSA) (1099-SA))

Then you can access the HSA questions on the CA > Adjustments page "Let's check for CA income differences".

Neigh8 · Answer

https://community.freetaxusa.com/discussion/comment/7733#Comment_7733

Hello, running into the same issue, and wondering what you ended up doing?

Taxy · Answer

https://community.freetaxusa.com/discussion/comment/7671#Comment_7671

Adjustments give the options for:moving expensesalimony receivedalimony paidCalifornia HOPE for children trust accountCalifornia capital gains / losses

Uncommon / other adjustments give:student loan paymentswildfire relief paymentsany other amount you need to include

The option I tried is "any other amount you need to include" in the other adjustments section. In freetaxusa's CA tax summary, they acknowledge the existence of CA "Health Savings Account Earnings" but they do not correctly add the amount there. They put it "Other Additions." They don't show me the 540 preview but I'm pretty sure they mark it under z column C in the schedule CA (540) which is incorrect. It needs to be under Income number 2 column C.

The issue / bug in this software is on the federal side. If you contribute to or take a distribution from you HSA account THEN the software WILL ask about interest, dividends and capital gains in your HSA account. It assumes if you didn't contribute or take a distribution, then you don't have an HSA account. Of course people can have HSA accounts beyond years they add or remove money while still gaining money inside the account.