
We are running Dynamics AX 2012 R2 for Payroll and HR for employees in multiple states. We have recently been made aware that HSA deductions, while tax exempt from federal and most state taxes, are taxable in California. They are to be included in taxable wages for SIT, SUI, and SDI. Even more unusual, employer contributions into an employee's HSA account are also taxable. Has anybody run into this? How can Dynamics AX 2012 R2 Payroll be configured to only apply these rules to California and not other states? We currently have HSA deductions set up as Section 125 for tax purposes.
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