HSA add-back and nonresident California return schedule CA question

I moved from California to another state early last year. I had (different) W-2 jobs, plus decent capital gains income, in both states. In the new state, I was (and am) on a high-deductible healthcare plan, so I established and maxed out an HSA. I did not have a high-deductible plan before so I never contributed to one while in California.

Because I wanted to make sure I was handling the multi-state situation properly, I engaged a professional tax preparer (based in my current state) to handle the federal + two state returns, thinking this would take some stress off my plate. The preparer sent over my draft returns on Monday, and there were some pretty obvious issues with the income allocated to California (cap gains number was off, and the HSA income add-back was included in column E of 540NR Schedule CA even though it was not sourced from California income). I let him know, he blamed the issue on his tax prep software, and corrected the errors. However, the new draft return does not include the HSA add-back in column C or D, which doesn't seem correct to me.

I looked at the instructions for the nonresident Schedule CA, and everything I can see would seem to suggest that the income should be added back on column C (and therefore included in the column D total to add into the "all income under California law as if a California resident" amount), but not in column E.

When I flagged this to him, his response was "Since the HSA was 100% sourced from <other state> income we do not report it on CA because it is not income." I agree that this is why it shouldn't be in column E, but I'm not convinced that this makes sense as a rationale to not include it in column C/D. Am I actually in the wrong here regarding how this should be classified?

And if I'm not wrong, does anyone have a good suggestion for how I should politely handle this? Pay the tax prep fee but ask them to only file the federal and other state returns, and then file California myself as self-prepared? Try to escalate to one of the CPAs in his office to get a correct answer? If we do end up there, I feel stuck. I hate to be the person arguing with someone about how to do their actual job, but I've definitely lost a lot of confidence after the first round of income allocation issues so I'm not sure that the scrutiny/double-checking is unjustified.

Posted Feb 25, 2026, 9:10 PM UTC

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