Why ER HSA Contribution on a CA nonresident's W-2 form subject to CA income adjustment?

[TaxesTech]

A Colorado full-year resident has passive loss from a minor ownership to a CA partnership holding CA farming property - he files a multi-state tax return. 

His W-2 income is 100% Colorado sourced income with a Employer HSA contribution.  Even I'm filing a Form 540NR and checked "Non Resident" on Sch CA-NR, ProConnect still gives me critical diagnostic warning, until I adjust CA income to include the ER HSA contribution as a CA taxable income. 

Client's only CA income source has a ordinary loss, but now he needs to pay a CA tax on part of his CO wages, which is hard to make sense...any one has the relevant CA tax code that I can quote? Or anything on ProConnect needs to be fixed?  Thank you in advance!

[abctax55 · Accepted solution]

Because CA starts with Federal income, then adjusts that to comply with CA laws.  CA doesn't allow HSA contributions. 

Then the tax is computed, and then modified by the % of CA source income to Federal income as adjust to CA tax laws.

[abctax55]

As for a cite - try Spidell's for all things CA.   

https://www.caltax.com/

[TaxesTech]

Thank you so much!!

[abctax55]

YVW... I was working on a return with the same issue (tho my client lives in NV) and just reconciled the return.  So it was fresh on my mind 🙂

[rbynaker]

I don't speak ITO (or Lacerte) but looking at the CaCa form I would expect the HSA adjustment in Part II Column C but not in Column E.  I'm wondering if you need a -1 somewhere?

(I'm looking at a client's return from last year so hopefully the CaCa sections/columns haven't changed for 2022!)

[TaxesTech]

You are right the adjustment was put in Column C and Column D and E were automatically populated the same thing...now I see the tax form did say in Column E that even Nonresident subject to adjustment.  Thank you so much!