By Reagan Steele – Business & Economic Policy Writer

Most Americans can stash money into a Health Savings Account (HSA) and enjoy a rare tax break: tax-free contributions, tax-free growth, and tax-free withdrawals—so long as it’s for medical expenses.

But not in California.

Despite the federal government recognizing HSAs as one of the most efficient savings tools for healthcare, California is one of only two states that refuses to conform to the federal tax treatment. Here, your HSA contributions and any interest or gains are fully taxable under state law.

For working families and small business owners, it’s another slap in the face.

The reason? California’s tax code doesn’t automatically sync with the IRS code. Legislators in Sacramento have the power to fix it—but year after year, they don’t. Bills have been proposed to align California with the federal standard, but they’ve been repeatedly killed in committee. Revenue, they say. Translation: Sacramento wants your money more than it wants your health savings to grow.

It’s part of a larger trend—high taxes, complex rules, and little relief for the middle class. And while other states give you a break for preparing for future medical needs, California keeps reaching into your wallet.

The state that prides itself on progressive healthcare policies can’t even bring itself to support one of the few tools that puts power in the hands of individuals.

So if you’re saving for healthcare expenses through an HSA, just remember: in California, you’re still paying the price.