does ca tax earnings in hsa
If they take money out and use it for something other than health care, it is subject to federal income tax, plus, if they are younger than 65, a 10 percent penalty. In California, there is no state-tax deduction for contributions to an HSA, and the account's earnings are subject to state income tax.he gets no deduction for California. For each of the four years, she excludes the $250 income for federal purposes. For California, she must report the $250 as income. When she withdraws the entire account of $9,000 in a nonqualifying distribution, she pays tax and a penalty on her federal return.