Nevada HSA contribution being taxed to CA tax return (multi state filing)

[JTW54]

Nevada HSA contribution being taxed to CA tax return (multi state filing)

Taxpayers are full year residents of Nevada.  The taxpayer works in California and the spouse works in Nevada.   The spouse has a W-2 with code W in box 12: Employer contributions to HSA.  She did not make a contribution, just her employer on her behalf.  The schedule  CA-NR is adding the HSA contribution to California as taxable income. Would someone be able to tell me if  I can exclude this from being taxed to California since she does not work in California?  

Your reply would be greatly appreciated.  

[qbteachmt]

I googled this for you:

CA W-2 hsa wages income

And found this for you: https://sco.ca.gov/ppsd_empinfo_form_w2.html

You might want to bookmark that site, if you have CA returns.

2020 Form W-2 Wage and Tax Statement FAQs

Frequently Asked Questions Regarding Form W-2

"CA taxpayers cannot deduct contributions to federal HSA from their California Wages.  It is not excluded as income and is added to the taxpayers CA wages."

[JTW54]

   Thank you for the information.   I have looked at that site, and it's very helpful, but I am still not clear why the clients Nevada HSA contribution, (not California), would be taxed to California.  The taxpayer works in California but the Spouse, the one with the HSA contribution works in Nevada and is a Nevada resident.  I have been researching but have not yet found the answer to that question.

[qbteachmt]

"why the clients Nevada HSA contribution, (not California),"

Did you properly allocate by Source (State)? If the Spouse has the HSA account and the policy, you should be able to show that this income is not CA sourced. If that is Family coverage and the owner of the HSA is the taxpayer, I can see how it might get treated as reportable for the taxpayer for CA, because that will be linked by name.

Facts and circumstances apply.

[rbynaker · Accepted solution]

We normally have a handful of CA preparers hanging around.  I'll take a stab at this one (and they can correct me if I'm wrong).  There are two components that you need to look at here.

CA NR taxes you on all of your income as if you were a resident and then applies a ratio to reduce the tax to arrive at CA tax amount.

CA does NOT conform to federal treatment of HSA contributions.  So even the spouse's gross income would include the HSA contribution under CA law (presumably this is a W-2 box 12 code W amount).

IMO, the HSA income is properly included in CA AGI.  It should be included in the CA Sch CA (which I call "kaka") column C to arrive at column D "Total amounts using CA law" but NOT included in column E.  If the software is including it in column E then you need to search and destroy.  If it's just included in column C, that's correct.

Rick

[JTW54]

Thank you for your help.

Yes I did properly allocate by source.    

[JTW54]

Thank you Rick