Question

Benjamin took a distribution of $3,200 from his health savings account (HSA) to pay for qualified medical expenses. Benjamin’s federal adjusted gross income is $39,930. He is itemizing deductions on his federal return but has no medical expense deduction because all of his medical expenses were paid with the funds from his HSA. What adjustment would you make on his California return?

Answer 1

California does not conform to the federal tax-free treatment of HSA distributions. You must add the $3,200 HSA distribution back to income on the California return.

So: add $3,200 to his federal AGI of $39,930 — California AGI becomes $43,130.