SB 230: Small Business Employer Deduction for HSA Contributions


SB-230, in partial conformity with federal tax law, would allow income-eligible taxpayers to claim a tax deduction equal to the amount the taxpayer contributes to a Health Savings Account (HSA).


Health savings accounts (HSA) are tax-exempt trust or custodial accounts created exclusively to pay for the qualified medical expenses of the account holder and his/her spouse and dependents. The balance in an HSA can grow on a tax-free basis provided that withdrawals are used for a qualified medical expense and an HSA may only be opened for individuals who are insured under a high deductible health plan (HDHP).

In nonconformance to federal tax code, California and New Jersey are currently the only two states in the country that do not allow tax deductions for HSA contributions.

Health savings accounts can be a very powerful tool to help offset the costs of healthcare at any stage in life. However, there is some debate over the equity implications of pre-tax incentives for contributions made by high income earners. Concerns have been raised regarding previously introduced full conformity measures that would allow HSA contribution tax deductions for any taxpayer because taxpayers with higher incomes are more likely to have the discretionary income to contribute to an HSA while simultaneously having less need for the corresponding tax relief.

SB 230 addresses that concern by placing an income limit equivalent to the last California median income statistics reported by Franchise Tax Board (FTB). This bill provides middle class Californians with another powerful tax-advantaged tool to help keep up with rising healthcare costs.


SB-230 provides a tax deduction to a taxpayer equal to the amount that they contribute to an HSA provided that they meet the specified income eligibility.  Spouses filing joint returns, heads of household, and surviving spouses must make less than $87,000 per year, while other filing individuals must make less than $42,000 per year. These income limits shall also be adjusted annually for inflation.

Click here to read the bill language