Question

Elfreda is a California resident. She contributed $3,600 to a health savings account (HSA) through employer contributions. Her Form W-2 shows $3,600, with a code W in box 12.The contribution was pre-tax and not subject to federal tax. However, the $3,600 is taxed by California. What adjustment, if any, should be made on her California Schedule CA (540)?
No adjustment is required.
Enter $3,600 on Schedule CA (540), Part I, Section C, line 13 (health savings account deduction), column A (Additions).
Enter $3,600 on Schedule CA (540), Part I, Section A, line 1h (other earned income), column B (Subtractions).
Enter $3,600 on Schedule CA (540), Part I, Section A, line 1h (other earned income), column C (Additions).

Answer 1

Enter $3,600 on Schedule CA (540), Part I, Section A, line 1h (other earned income), column C (Additions).

Explanation: Employer HSA contributions (code W) are excluded for federal but taxable for California, so you must add them back to federal AGI on Schedule CA (column C).