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I live in California, where the interest and dividends earned in an HSA are taxable. They need to be reported on the Schedule CA (540) on line 2 (taxable interest) and line 3 (ordinary dividends).

I hold a mutual fund in an HSA. My problem is that my HSA statement includes a single number for “dividend/interest” and I’m not sure how much of that amount is the dividend and how much is the interest. The statement does show separate transactions labeled “ST CG Rein” and “Income Reinvest” whose total is equal to the number shown under “dividend/interest.” Is one of these a dividend and the other interest? If not, how can I determine how much of the income was a dividend and how much was interest?

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    "ST CG Rein" probably means "Short Term Capital Gain Reinvested" – Aganju Apr 4 at 18:16
  • Could you post a link to the "Interest and Dividend Adjustments Worksheet" that you are looking at? I can't find it. – Ben Miller - Remember Monica Apr 4 at 19:36
  • @BenMiller-RememberMonica I’m using TurboTax, so maybe the worksheet is just a TurboTax invention? I rewrote the question to refer directly to the Schedule CA (540), the actual state tax form. – bdesham Apr 5 at 3:11
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As others have said, it sounds like a capital gains distribution, so it would most accurately be categorized as a capital gain. However, this would probably mean you should fill out a California version of Schedule D, whereas you don't need to if it's identical to your federal version. So I personally would just label it a dividend (as far as I know, mutual funds pay dividends even if the source of the money is ultimately interest). I suspect many Californians have HSAs without realizing they are supposed to report earnings inside them, and there is virtually zero chance California will mind if you report them as capital gains, dividends, or interest. It all gets taxed the same anyway.

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