HSAs Subject to California State Income Tax
"[F]ew people appear aware" that California is one of seven states that does not provide a state income tax exemption on money in health savings accounts, according to experts, the Los Angeles Times reports.
Although the accounts have been subject to state taxes since they were created in 2004, most HSAs were not opened until last year. As a result, many Californians "won't realize" they don't get a state tax break until they "see that their state taxable income is thousands of dollars higher than their federal income," according to the Times.
Assembly member George Plescia (R-San Diego) and Sen. Abel Maldonado (R-San Luis Obispo) have introduced legislation that would provide a state tax exemption for HSAs, but similar attempts died in the State Revenue and Tax Committee the past two years.
Maldonado said pressure will build on the Legislature to provide the tax exemption as more residents open HSAs (Kristof, Los Angeles Times, 3/6).