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People who have a qualified high deductible health insurance plan and who deposit money into a Health Savings Account (HSA) are able to deduct their contribution from their Federal Income Taxes (see IRS publication 969 Health Savings Accounts and Other Tax-Favored Health Plans.) Unfortunately, HSA contributions are currently subject to California income taxes.
In 2005, San Luis Obispo Republican Senator Abel Maldonado, introduced SB 173 that would have allowed Californian's with HSA's to deduct their contributions from their California State Income Taxes. The analysis of SB 173 describes the tax treatment of HSA plans. The analysis estimates that California would not collect $43 million in tax revenue during the period 2005-2008 if California were to allow tax deductibility for HSA contributions (see page 4 of the document.) The SB 173 did not pass into law. Accordingly, as of 2010, California is only one of four states (Alabama, New Jersey, Wisconsin and California) which currently do not allow HSA contributions to be deducted from state income taxes.
To open an HSA an individual must have a qualified California medical insurance plan that is “HSA compatible” (e.g., the plan can not pay for doctor visits, prescription medicine or other medical expenses until the full deductible has been satisfied.) For additional information on HSA accounts click here.
A person with an HSA compatible health plan can contribute up to the Federal limits into an HSA account. In 2011 the maximum amount that an individual can contribute to a California HSA account, assuming he had a qualified medical insurance plan is $3,050. A family with a qualified California High Deductible Health Plan (HDHP) is able to contribute a maximum of $6,150.
Making HSAs tax deductible from California income taxes would increase the value of these accounts and reduce the cost of health insurance for those Californian's with Health Savings Accounts. |
