HSA and state taxes

[simple girl]

Hello!

I live in a state that doesn't allow you to deduct your HSA contribution. I presume this means I can itemize my healthcare expenses on my state taxes, even though I will not do this on my federal taxes b/c I will take the HSA deduction for federal.

I haven't found a source yet that clearly addresses this.

Just double checking to see if anyone knows anything more on this topic.

 

[pb4uski]

I doubt that any state would allow a deduction for HSA contributions since is isn't money spent on health care. YMMV.

 

[Lakedog]

I assume Alabama is the state? I always thought this was a bit odd since AL typically tracks along with fed deductions, but guess they never got around to changing the tax code. I have an HSA and have itemized health care expenses on the AL return but it is limited to the amount above 4% of adjusted gross income so don't always meet that threshold. Health insurance premiums are considered an expense, but obviously the HSA contributions are not. I believe there are only 4 states that do not allow a deduction/exemption for HSA contributions similar to fed taxes.

Alabama is a tax friendly state to retirees so can't complain too much. I haven't paid any state taxes since retiring a few years ago.

 

[kaneohe]

https://askmrhsa.com/education/hsa-situations/hsas-by-state/

Apparently we are in the minority. In CA which does not recognize HSAs,not
only can you not deduct contributions, but any earnings from the account are taxed. Basically you treat an HSA like any taxable account for state purposes.

 

[simple girl]

I doubt that any state would allow a deduction for HSA contributions since is isn't money spent on health care. YMMV.

Oh my bad. I said hsa contribution. I meant my medical expenses for 2014.

 

[simple girl]

I assume Alabama is the state? I always thought this was a bit odd since AL typically tracks along with fed deductions, but guess they never got around to changing the tax code. I have an HSA and have itemized health care expenses on the AL return but it is limited to the amount above 4% of adjusted gross income so don't always meet that threshold. Health insurance premiums are considered an expense, but obviously the HSA contributions are not. I believe there are only 4 states that do not allow a deduction/exemption for HSA contributions similar to fed taxes.

Thank you, yes, it is Alabama. I think we will have expenses above th 4% threshhold, but I'm still gathering all of my data. What a pain! I vow to stay more organized from here forward. Ugh!

Alabama is a tax friendly state to retirees so can't complain too much. I haven't paid any state taxes since retiring a few years ago.

Could you elaborate, please? Maybe you know something that would motivate us to be "southern snowbirds" instead of actually moving to Florida when we retire someday.

 

[simple girl]

https://askmrhsa.com/education/hsa-situations/hsas-by-state/

Apparently we are in the minority. In CA which does not recognize HSAs,not
only can you not deduct contributions, but any earnings from the account are taxed. Basically you treat an HSA like any taxable account for state purposes.

I read that somewhere. That really stinks! I didn't see anywhere where AL residents have to pay tax on HSA earnings. Hope not...and hoping Quicken will keep me on track with the AL code...

 

[Lakedog]

Could you elaborate, please? Maybe you know something that would motivate us to be "southern snowbirds" instead of actually moving to Florida when we retire someday.

In my case, it is primarily because they do not tax federal (and certain other) pensions. I usually have enough deductions/exemptions to take care of other earnings like dividends/interest. Although I'm not going to receive much when I am eligible, SS is not taxed either.

Since I don't own property in AL anymore, I will likely call another state home at some point. A no income tax state would be nice - I have lived in both FL and TN, and it sure was nice not having to file a state tax return.

 

[kaneohe]

. Hope not...and hoping Quicken will keep me on track with the AL code...

Don't be too sure.......there was a similar thread on bogleheads.org re:
CA taxation of HSAs. Publications & instructions for the appropriate form suggested interest/DIVs were taxed currently but CGs/CG distributions weren't.
until they were withdrawn from HSA. TT apparently treated the same way.

I sent the state tax board a question, then later noticed they had a chat line and that it was not Sat. as I had first thought, but Fri. Chatted w/ a rep there who believed the same was true but when I asked how they would determine
the pedigree of funds withdrawn since CGs could have been put into bank accounts or even funds that produced dividends, he decided to doublecheck w/
an auditor. After a long time, he came back saying everything was taxed currently. So perhaps nobody knows except the auditors

 

[fh2000]

https://askmrhsa.com/education/hsa-situations/hsas-by-state/

Apparently we are in the minority. In CA which does not recognize HSAs,not
only can you not deduct contributions, but any earnings from the account are taxed. Basically you treat an HSA like any taxable account for state purposes.

Kaneohe,

Another CA resident with HSA accounts.

Since contribution is pre-tax for Fed, but not CA, does that mean by the time I begin withdrawing for medical purpose, all the contribution money is treated as ordinary income in CA, and the further gain/loss will then be retreated as Capital gain/loss (long term or short term)?

 

[fh2000]

Kaneohe,

Another CA resident with HSA accounts.

Since contribution is pre-tax for Fed, but not CA, does that mean by the time I begin withdrawing for medical purpose, all the contribution money is treated as ordinary income in CA, and the further gain/loss will then be retreated as Capital gain/loss (long term or short term)?

Found an old thread in Bogleheads for my own question:

I never noticed this until I look at my W-2. For CA, the HSA contributions is not pre-tax and Megacorp adjusted this properly. Moving forward, I will just need to track all interest/dividend/CG like any other broker accounts for CA tax.

 

[kaneohe]

Found an old thread in Bogleheads for my own question:

I never noticed this until I look at my W-2. For CA, the HSA contributions is not pre-tax and Megacorp adjusted this properly. Moving forward, I will just need to track all interest/dividend/CG like any other broker accounts for CA tax.

Yes,that's my understanding too.......just additions to Fed AGI on the CA adjustment form.......as ordinary income.