Moved to CA...Just Learned about HSA Tax

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krizmo
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Joined: Fri Jul 31, 2020 11:08 pm

Moved to CA...Just Learned about HSA Tax

Post by krizmo » Fri Jul 31, 2020 11:58 pm

Hello!

Thanks to the internet and specifically, this forum, I just discovered that CA taxes HSA contributions. What a total bummer!! But glad I caught it somewhat early, as I moved to CA in Dec 2019. Thanks BogleHeads!

SO....I've been researching and absorbing everything I can about this and it seems that there are two things:
1. Invest HSA in all treasuries to avoid state taxes (Which lead me down a rabbit hole of learning more on treasuries, tax benefits with HSA, etc.)
2. Continue to invest in equities index funds (Which lead me down a rabbit hole of learning about cost basis, capital gains tax, etc)

I'm 28, male, and consider myself healthy. I don't plan to use the HSA until retirement or if any MAJOR injuries occur, but even then I have a 6 mo emergency fund I could also tap into. Otherwise, I pay all medical expenses out-of-pocket and keep my receipts in a google drive.

I consider myself in the high risk/aggressive investment strategy and currently is all in the Fidelity 500 Index Fund (FXAIX), except the cash to match my health insurance out-of-pocket max dollar amount. But based on my research, the complaint seems to be that I will owe CA State Tax and will have to have good bookkeeping of all purchases from now on.

My Question: For someone who wants an aggressive approach and don't mind the work involved in keeping records, what information do I need to have?

Is the following all I need?
- Date of Purchase
- Number of Shares
- Total $ Spent
- Dividend Re-investment information (Date, number of shares, $ spent)

If so, Fidelity seems to show all this information in the "Activity & Order: History" section. It doesn't seem that hard to find and track so I feel that I must be missing something, or no? Or as the newbie that I am, really should consider avoiding the CA state tax?

Thank you!

purpleKatz
Posts: 39
Joined: Sat Jun 13, 2015 5:16 pm

Re: Moved to CA...Just Learned about HSA Tax

Post by purpleKatz » Sat Aug 01, 2020 12:16 am

Third option: invest in BRKB since it doesn't pay dividends.

freeform0
Posts: 4
Joined: Sun Jan 12, 2014 1:58 pm

Re: Moved to CA...Just Learned about HSA Tax

Post by freeform0 » Sat Aug 01, 2020 9:45 am

I don't have an answer to your question--just wanted to thank you for posting. I'm also in CA, and until now, I wasn't aware of the different treatment of HSA's here. I looked for more info and found this article helpful - https://www.forbes.com/sites/megangorma ... d005166d48

I have two HSA's - one with Fidelity invested in FSKAX. The other, through my employer, is mostly cash reserved for a medical emergency. I'm going check now to see what the dividend reinvestment settings, etc. are.

Thanks again for posting. :sharebeer

megabad
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Joined: Fri Jun 01, 2018 4:00 pm

Re: Moved to CA...Just Learned about HSA Tax

Post by megabad » Sat Aug 01, 2020 9:54 am

Not that hard to track until you change providers. As far as I can tell, no cost basis transfers. And I have no idea what happens when you sell as far as cost basis method but I suspect that would likely get all screwed up as well. I don’t want to scare you because I would still invest essentially everything in equities, but the CA law is completely frivolous and unreasonable. Just remember the rule with HSAs, keep all your records forever (healthcare receipts, statements, etc) and you should be ok. In my case it would probably only take me a few hundred hours to backcalvulate my cost basis...and it probably would result in a total tax liability of maybe a couple hundred bucks...like I said...frivolous.

02nz
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Joined: Wed Feb 21, 2018 3:17 pm

Re: Moved to CA...Just Learned about HSA Tax

Post by 02nz » Sat Aug 01, 2020 10:11 am

I would recommend using an ETF (no fees for buying Vanguard or other ETFs at Fidelity), since unlike FXAIX or FSKAX they generally won't have capital gains distributions, only dividends. That makes them more tax-efficient and one less item to enter on your CA taxes, although it's not a big difference.

I just did my federal and CA taxes with TurboTax, have an HSA with Fidelity. It was fine, Fidelity's website provided the info I needed.

RocketShipTech
Posts: 540
Joined: Sat Jun 13, 2020 10:08 pm

Re: Moved to CA...Just Learned about HSA Tax

Post by RocketShipTech » Sat Aug 01, 2020 10:21 am

Serious question: If it’s impossible for the taxpayer to calculate because there are no records, how would the Franchise Tax Board calculate it?

megabad
Posts: 2964
Joined: Fri Jun 01, 2018 4:00 pm

Re: Moved to CA...Just Learned about HSA Tax

Post by megabad » Sat Aug 01, 2020 10:23 am

RocketShipTech wrote:
Sat Aug 01, 2020 10:21 am
Serious question: If it’s impossible for the taxpayer to calculate because there are no records, how would the Franchise Tax Board calculate it?
Not sure, but for capital gains I would assume the same way the IRS does—assume 0 basis and fully tax everything. You might be better off just guessing but I’m not sure that would hold up on a challenge.

RocketShipTech
Posts: 540
Joined: Sat Jun 13, 2020 10:08 pm

Re: Moved to CA...Just Learned about HSA Tax

Post by RocketShipTech » Sat Aug 01, 2020 10:28 am

megabad wrote:
Sat Aug 01, 2020 10:23 am
RocketShipTech wrote:
Sat Aug 01, 2020 10:21 am
Serious question: If it’s impossible for the taxpayer to calculate because there are no records, how would the Franchise Tax Board calculate it?
Not sure, but for capital gains I would assume the same way the IRS does—assume 0 basis and fully tax everything. You might be better off just guessing but I’m not sure that would hold up on a challenge.
Pretty sure the IRS does not do that with stock capital gains. They would use 1099s.

megabad
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Joined: Fri Jun 01, 2018 4:00 pm

Re: Moved to CA...Just Learned about HSA Tax

Post by megabad » Sat Aug 01, 2020 10:32 am

RocketShipTech wrote:
Sat Aug 01, 2020 10:28 am
megabad wrote:
Sat Aug 01, 2020 10:23 am
RocketShipTech wrote:
Sat Aug 01, 2020 10:21 am
Serious question: If it’s impossible for the taxpayer to calculate because there are no records, how would the Franchise Tax Board calculate it?
Not sure, but for capital gains I would assume the same way the IRS does—assume 0 basis and fully tax everything. You might be better off just guessing but I’m not sure that would hold up on a challenge.
Pretty sure the IRS does not do that with stock capital gains. They would use 1099s.
Umm...you asked how they would calculate it “because there are no records” and then suggested they would just use the records...

RocketShipTech
Posts: 540
Joined: Sat Jun 13, 2020 10:08 pm

Re: Moved to CA...Just Learned about HSA Tax

Post by RocketShipTech » Sat Aug 01, 2020 10:33 am

megabad wrote:
Sat Aug 01, 2020 10:32 am
RocketShipTech wrote:
Sat Aug 01, 2020 10:28 am
megabad wrote:
Sat Aug 01, 2020 10:23 am
RocketShipTech wrote:
Sat Aug 01, 2020 10:21 am
Serious question: If it’s impossible for the taxpayer to calculate because there are no records, how would the Franchise Tax Board calculate it?
Not sure, but for capital gains I would assume the same way the IRS does—assume 0 basis and fully tax everything. You might be better off just guessing but I’m not sure that would hold up on a challenge.
Pretty sure the IRS does not do that with stock capital gains. They would use 1099s.
Umm...you asked how they would calculate it “because there are no records” and then suggested they would just use the records...
HSAs do not issue 1099s

megabad
Posts: 2964
Joined: Fri Jun 01, 2018 4:00 pm

Re: Moved to CA...Just Learned about HSA Tax

Post by megabad » Sat Aug 01, 2020 10:41 am

RocketShipTech wrote:
Sat Aug 01, 2020 10:33 am
megabad wrote:
Sat Aug 01, 2020 10:32 am
RocketShipTech wrote:
Sat Aug 01, 2020 10:28 am
megabad wrote:
Sat Aug 01, 2020 10:23 am
RocketShipTech wrote:
Sat Aug 01, 2020 10:21 am
Serious question: If it’s impossible for the taxpayer to calculate because there are no records, how would the Franchise Tax Board calculate it?
Not sure, but for capital gains I would assume the same way the IRS does—assume 0 basis and fully tax everything. You might be better off just guessing but I’m not sure that would hold up on a challenge.
Pretty sure the IRS does not do that with stock capital gains. They would use 1099s.
Umm...you asked how they would calculate it “because there are no records” and then suggested they would just use the records...
HSAs do not issue 1099s
Hence my initial reply...

RocketShipTech
Posts: 540
Joined: Sat Jun 13, 2020 10:08 pm

Re: Moved to CA...Just Learned about HSA Tax

Post by RocketShipTech » Sat Aug 01, 2020 10:44 am

megabad wrote:
Sat Aug 01, 2020 10:41 am
RocketShipTech wrote:
Sat Aug 01, 2020 10:33 am
megabad wrote:
Sat Aug 01, 2020 10:32 am
RocketShipTech wrote:
Sat Aug 01, 2020 10:28 am
megabad wrote:
Sat Aug 01, 2020 10:23 am


Not sure, but for capital gains I would assume the same way the IRS does—assume 0 basis and fully tax everything. You might be better off just guessing but I’m not sure that would hold up on a challenge.
Pretty sure the IRS does not do that with stock capital gains. They would use 1099s.
Umm...you asked how they would calculate it “because there are no records” and then suggested they would just use the records...
HSAs do not issue 1099s
Hence my initial reply...
The IRS doesn’t tax HSAs

livesoft
Posts: 72482
Joined: Thu Mar 01, 2007 8:00 pm

Re: Moved to CA...Just Learned about HSA Tax

Post by livesoft » Sat Aug 01, 2020 10:48 am

So as far as California is concerned an HSA is like a taxable account. You folks in California need to learn about investing in taxable accounts, then you are all set. That's not really a big deal at all.
Last edited by livesoft on Sat Aug 01, 2020 10:48 am, edited 1 time in total.
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02nz
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Joined: Wed Feb 21, 2018 3:17 pm

Re: Moved to CA...Just Learned about HSA Tax

Post by 02nz » Sat Aug 01, 2020 10:48 am

RocketShipTech wrote:
Sat Aug 01, 2020 10:21 am
Serious question: If it’s impossible for the taxpayer to calculate because there are no records, how would the Franchise Tax Board calculate it?
The fact a 1099 isn't issued doesn't mean there are no records. Of course there are records. Even outside of brokerage accounts with covered shares, every single brokerage I use shows my gains/losses. They can show that only because they've kept track of my original purchase cost even though the IRS doesn't require them to do so for HSAs and IRAs.

RocketShipTech
Posts: 540
Joined: Sat Jun 13, 2020 10:08 pm

Re: Moved to CA...Just Learned about HSA Tax

Post by RocketShipTech » Sat Aug 01, 2020 10:49 am

livesoft wrote:
Sat Aug 01, 2020 10:48 am
So as far as California is concerned an HSA is like a taxable account. You folks in California need to learn about investing in taxable accounts, then you are all set. That's not really a big deal at all.
Try calculating your capital gains and dividends without a 1099

livesoft
Posts: 72482
Joined: Thu Mar 01, 2007 8:00 pm

Re: Moved to CA...Just Learned about HSA Tax

Post by livesoft » Sat Aug 01, 2020 10:49 am

02nz wrote:
Sat Aug 01, 2020 10:48 am
.... Even outside of brokerage accounts with covered shares, every single brokerage I use shows my gains/losses. They can show that only because they've kept track of my original purchase cost even though the IRS doesn't require them to do so for HSAs and IRAs.
I am going to guess that you do not use Vanguard as one of your brokerages for any of your IRAs or you do not have any IRAs.
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livesoft
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Joined: Thu Mar 01, 2007 8:00 pm

Re: Moved to CA...Just Learned about HSA Tax

Post by livesoft » Sat Aug 01, 2020 10:50 am

RocketShipTech wrote:
Sat Aug 01, 2020 10:49 am
livesoft wrote:
Sat Aug 01, 2020 10:48 am
So as far as California is concerned an HSA is like a taxable account. You folks in California need to learn about investing in taxable accounts, then you are all set. That's not really a big deal at all.
Try calculating your capital gains and dividends without a 1099
I do it all the time. Is there a problem with that?
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RocketShipTech
Posts: 540
Joined: Sat Jun 13, 2020 10:08 pm

Re: Moved to CA...Just Learned about HSA Tax

Post by RocketShipTech » Sat Aug 01, 2020 10:51 am

livesoft wrote:
Sat Aug 01, 2020 10:50 am
RocketShipTech wrote:
Sat Aug 01, 2020 10:49 am
livesoft wrote:
Sat Aug 01, 2020 10:48 am
So as far as California is concerned an HSA is like a taxable account. You folks in California need to learn about investing in taxable accounts, then you are all set. That's not really a big deal at all.
Try calculating your capital gains and dividends without a 1099
I do it all the time. Is there a problem with that?
Yes, yes there is.

sailaway
Posts: 1767
Joined: Fri May 12, 2017 1:11 pm

Re: Moved to CA...Just Learned about HSA Tax

Post by sailaway » Sat Aug 01, 2020 10:51 am

livesoft wrote:
Sat Aug 01, 2020 10:48 am
So as far as California is concerned an HSA is like a taxable account. You folks in California need to learn about investing in taxable accounts, then you are all set. That's not really a big deal at all.
You don't get the same records that you get for taxable accounts.

I don't even get a year end statement, I have to add up the quarterly statements.

megabad
Posts: 2964
Joined: Fri Jun 01, 2018 4:00 pm

Re: Moved to CA...Just Learned about HSA Tax

Post by megabad » Sat Aug 01, 2020 10:54 am

I just print the transaction logs and save them. The “statements” don’t show anything really that I need (ie shares and share price). If you contribute every paycheck for a decade this makes it quite a bit more work than my usual taxable account non covered shares calculations because those are less frequent.

02nz
Posts: 5380
Joined: Wed Feb 21, 2018 3:17 pm

Re: Moved to CA...Just Learned about HSA Tax

Post by 02nz » Sat Aug 01, 2020 10:59 am

livesoft wrote:
Sat Aug 01, 2020 10:49 am
02nz wrote:
Sat Aug 01, 2020 10:48 am
.... Even outside of brokerage accounts with covered shares, every single brokerage I use shows my gains/losses. They can show that only because they've kept track of my original purchase cost even though the IRS doesn't require them to do so for HSAs and IRAs.
I am going to guess that you do not use Vanguard as one of your brokerages for any of your IRAs or you do not have any IRAs.
Got rid of Vanguard a while ago (crappy IT being one of the reasons), but I seem to recall they did keep track. In any case: Fidelity, Ally Invest, Chase, Merrill Edge, and TD Ameritrade all do.

livesoft
Posts: 72482
Joined: Thu Mar 01, 2007 8:00 pm

Re: Moved to CA...Just Learned about HSA Tax

Post by livesoft » Sat Aug 01, 2020 11:02 am

sailaway wrote:
Sat Aug 01, 2020 10:51 am
livesoft wrote:
Sat Aug 01, 2020 10:48 am
So as far as California is concerned an HSA is like a taxable account. You folks in California need to learn about investing in taxable accounts, then you are all set. That's not really a big deal at all.
You don't get the same records that you get for taxable accounts.

I don't even get a year end statement, I have to add up the quarterly statements.
I don't find it difficult to create my own year-end* statements as needed in my non-taxable accounts by using my online access to list my transactions while I am logged in to an account with my laptop and creating a PDF. Maybe folks who only use smart phones with their accounts have problems doing that ... I don't know. I can even restrict the transactions to just dividends, capital gains distributions, or sales. it is true that I would have to look up the percent of qualified dividends someplace else, but this is pretty trivial to do.

*Or any date range(s) that I want.
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sailaway
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Joined: Fri May 12, 2017 1:11 pm

Re: Moved to CA...Just Learned about HSA Tax

Post by sailaway » Sat Aug 01, 2020 11:11 am

livesoft wrote:
Sat Aug 01, 2020 11:02 am
sailaway wrote:
Sat Aug 01, 2020 10:51 am
livesoft wrote:
Sat Aug 01, 2020 10:48 am
So as far as California is concerned an HSA is like a taxable account. You folks in California need to learn about investing in taxable accounts, then you are all set. That's not really a big deal at all.
You don't get the same records that you get for taxable accounts.

I don't even get a year end statement, I have to add up the quarterly statements.
I don't find it difficult to create my own year-end* statements as needed in my non-taxable accounts by using my online access to list my transactions while I am logged in to an account with my laptop and creating a PDF. Maybe folks who only use smart phones with their accounts have problems doing that ... I don't know. I can even restrict the transactions to just dividends, capital gains distributions, or sales. it is true that I would have to look up the percent of qualified dividends someplace else, but this is pretty trivial to do.

*Or any date range(s) that I want.
My HSA does not offer the same options. Perhaps the Fidelity HSA does?

02nz
Posts: 5380
Joined: Wed Feb 21, 2018 3:17 pm

Re: Moved to CA...Just Learned about HSA Tax

Post by 02nz » Sat Aug 01, 2020 11:22 am

The OP's question can be answered very simply, without a discussion of Vanguard, 1099s, PCs vs mobile devices, etc. :happy

OP has an HSA with Fidelity. I just looked again at the 2019 year-end statement for my Fidelity HSA, which can be downloaded from the website. It clearly shows the distributions I received for the year (dividends only since I use ETFs in the HSA). It also clearly shows any realized gains/losses. That's all you need to figure taxes on the HSA for CA taxes.

Gleevec
Posts: 336
Joined: Sun Mar 03, 2013 11:25 am

Re: Moved to CA...Just Learned about HSA Tax

Post by Gleevec » Sat Aug 01, 2020 3:23 pm

Or just hold your TIPS in your HSA

megabad
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Joined: Fri Jun 01, 2018 4:00 pm

Re: Moved to CA...Just Learned about HSA Tax

Post by megabad » Sat Aug 01, 2020 5:41 pm

Gleevec wrote:
Sat Aug 01, 2020 3:23 pm
Or just hold your TIPS in your HSA
OP is 28...and already in the right track. Fidelity provides good info as stated by OP. Just use it and keep records and there isn’t a need to limit yourself to treasuries. Especially TIPS.

CFM300
Posts: 1962
Joined: Sat Oct 27, 2007 5:13 am

Re: Moved to CA...Just Learned about HSA Tax

Post by CFM300 » Sat Aug 01, 2020 6:21 pm

Don't forget the adjustment that needs to be made on your California tax return. Schedule CA, Part I, Section C, line 12 (on the 2019 form).

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