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California Schedule CA(540): remove HSA distribution Column C additions part 2 line 4

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last updated ‎April 26, 2020 10:43 PM

TP received form 1099-SA in relation to his HSA distribution (all distrbutions are qualified medical expenses) but PTO carryovers the distribution to California schedule CA (540) part 2 line 4 as additions to column C and therefore increase the total Adjustments to Federal Itemized Deductions.


As CA does not recognize HSA, please let me know how to remove this addition to part 2 line 4 of column C schedule CA (540).


Thanks for your input.

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Level 15
last updated ‎April 26, 2020 10:43 PM

Are you saying that there is no federal income from your input, but there is CA income? That should not happen with simple input of distribution of X and expenses of X. Review your input. Is this a single state return or multi state? 

Just as an aside, have you been reporting the earnings of the HSA annually on the 540?


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Highlighted
last updated ‎April 26, 2020 10:43 PM

@George4Tacks Thanks for your comments.

There is no federal income or deduction as it is Line 1 form 1099-SA distribution (distribution code 1-normal distribution) and such distribution is a qualified medical expense. Part 2 line 16 f8889 –taxable HSA distributions is zero.


However, PTO carried over such distribution to California schedule CA (540) part 2 line 4 as an addition under column C. This increases CA itemized deductions on Line 18 Form 540.


PTO seems not to have an input field to tell it not to carryover such distribution to CA as an additional CA deduction.


This is a single state return and this is the first time TP is reporting the distribution from HSA.


Please let me have your thoughts on this. Thanks.

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Level 15
last updated ‎April 26, 2020 10:43 PM

@The Real Halloween 🎃Let's start with Code 1 = Normal Distribution. This could mean they sent the client a check to reimburse for expenses client said they paid out. In reality, the money could have paid the bill from the ice cream company that helps feed his diabetic disease. Code 1 does little to resolve the taxability of the distribution. There is no entry for the codes from box 3. There is only an input for box 1. 2 entries lower is Qualified unreimbursed medical .... That is where an entry equal to or greater than the first entry will save the day. If the client spent the money on insulin instead to Tutti-Frutti, then an entry here would exclude any income or penalty from the distribution for both Federal and California.  If this is not happening you must have done something amiss.


ex-AllStar
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last updated ‎April 26, 2020 10:43 PM

@George4Tacks you are right something must be amiss.

I did enter the same figures on Lines 14a distribution and 15 qualified medical expenses.of part 2 of f8889.

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Level 15
last updated ‎April 26, 2020 10:43 PM

I think I finally understand your question "However, PTO carried over such distribution to California schedule CA (540) part 2 line 4 as an addition under column C. This increases CA itemized deductions on Line 18 Form 540." was something i just glossed over as being a red herring. 

Since CA does not recognize the HSA, all income from it is taxable, which they don't seem to pursue. All expenses paid from it ARE DEDUCTIBLE MEDICAL, if they would otherwise be medically deductible. No deduction = distributions are just like you dug the money out of your left pocket. What you are seeing is the correct representation of an additional medical deduction on CA, shown on Schedule CA. 


ex-AllStar
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last updated ‎April 26, 2020 10:43 PM

@George4Tacks Thanks again for your time and valuable comment.

If  the additional medical deduction on CA as shown on Schedule CA  is correct, can I ask why didn't PTO also include the distribution as additional income in section B of Schedule CA?  I am asking this to determine whether I should add back the distribution as additional income in section B of Sch CA, specifically Line 21f-other income of Sch CA.

Thanks.

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Level 15
last updated ‎April 26, 2020 10:43 PM

HSA has NEVER been deductible on the CA return.  If there is a contribution, that is an adjustment on line 25 of Schedule CA. If there is a distribution AND IT IS TAXABLE FOR FEDERAL, then it will show up on line 21, with an adjustment back out in Column B. PTO does the presentation and computations automatically for CA resident. If there is a code W on the W-2, then PTO automatically makes an adjustment to wages on line 1 of Schedule CA.  HSA is a NON thing for CA.

 


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