CA SALT workaround (Form 3804-CR) and K-1 Partnership not working correctly

[Freedom1095]

I elected to send 9.3% of my Partnership K-1 earnings to CA FTB last year to take advantage of the Pass-Through entity elective tax credit. TurboTax Home & Business seems to count this money twice. 

For example (using rough numbers), my calculated state tax for 2022 is $45k. The amount sent to FTB in 2022 was $60k. Entering $60k in line 15f of the CA K-1 adjustments creates Form 3804-CR, which shows that I have available credit of $60k, which after subtracting the tax owed of $45k leaves line 5 showing $15k credit carryover for future years. Great so far. 

However, on the CA 540 form, it shows a tax of $45k, and a credit of $45k, thus $0 owed for tax.  Yet it STILL shows $60k in payments so the form is trying to say I am due a $60k refund! 

Somehow the program is double counting the state withholding such that on one hand it is correctly taking the withholding and creating a credit that zeroes out my tax owed and leaves the remainder as a credit for the next year (form 3804-CR) but on the other it is still taking the amount paid to the state already (perhaps from the Federal form?) and counting that again after the credit is applied, leaving me (on paper!) with a refund of all the money I paid to the state last year, which is clearly not right. 

Is there a pending fix to this? I can just delete form 3804-CR and the numbers *seem* to be correct with the expected refund amount, but I doubt this is the 'correct' way to do it!

[Freedom1095]

Ok, I figured out what is happening, but I believe a fix is needed to the program. 

My federal K-1 has the value of the money sent to the state entered in box 13, with a code 'W' indicating it was State income tax withheld. Turbo Tax sponges this into the state form on the 'Tax Payments Worksheet.'

However my State K-1 adjustments enter this value in box 15-f, creating form 3804-CR, which calculates the credit for the PTET (correctly I should add). 

The problem is that on the CA state 540 the credit zeros out tax owed, but the link to the Federal box 13 code W from my K-1 still exists, so the CA 540 shows both the credit from 3804-CR and the payments from the federal form. 

I think there needs to be a fix in the code such that: 

IF a filer has K-1 income from CA AND is claiming PTET credit, THEN the link from the federal K-1 box 13 should be broken and have the filer enter in estimates paid (from spousal W-2 or other sources) in the Tax Payments Worksheet for CA on their own.

This would seem to make the math work out correctly. 

Not sure if a fix can be done if time or if I need to file CA via paper?

[PatriciaV]

It would be helpful to have a TurboTax ".tax2022" file to test further.

If you would be willing to send us a “diagnostic” file that has your “numbers” but not your personal information, please follow these instructions: 

Open your return and go to Online in the TurboTax header. 

1. Choose Send Tax File to Agent.
2. You will see a message explaining what the diagnostic copy is.  Click Send on this screen and wait for the Token number to appear. 
3. Reply to this thread with your Token number and tag (@) the agent requesting the token from you.  

We will then be able to see the same experience you are having. If we are able to determine the cause, we'll reply here and provide you with a resolution. 

In the meantime, you may consider requesting an extension of time to file, unless you are comfortable deleting forms or overriding the entries using Forms Mode. Remember that any forms with red exclamation marks will prevent you from e-filing and invalidate the TurboTax guarantees. In some instances, overrides on worksheets are acceptable while others are not.

[krog57]

I have the exact same scenario.  When I enter PTET provided by my CA state K1 on line 15f onTT "Partnership K-1 Adjustments" my State refund more than doubles which can't be correct.  Any help on this matter would be greatly appreciated.  I can't proceed until this is fixed.

[Freedom1095]

@PatriciaV here is the token: 

1117972

Thanks for taking this on!

[PatriciaV · Accepted solution]

The amount from federal K-1 Line 13 Code W should be entered as "Other*" on line 8 with a custom description "CA PTET," and not as California withholding. The partnership didn't withhold the tax from the partner, but rather paid the tax on behalf of the partner. The information for Box 13W is intended to be used by the partner on their state tax return. Entering this as withholding is causing the double entry on the state tax forms.

For California adjustments from the K-1, the PTET is entered for Line 15 f - Form 38004-CR - Pass-Through Entity Elective Tax Credit. You have a different number (xx,631) here than was on the federal K-1 (xx,607), so I'm not sure which is correct.

The amount from the CA K-1 flows correctly to Form 3804-CR Part I Line 1a as PTE elective tax credit. This offsets the tax due and leaves a carryover to future years.

The Tax Payment Worksheet now shows only W-2 withholding, which is correct.

There should be no adjustments for itemized deductions on Schedule CA, since PTE is not an itemized deduction.

Finally, Form 540 correctly shows the PTE Election (code 242) on Line 43 and offsets the tax due on Line 36, for net due of zero on Line 48. There is a refund due for the W-2 withholding, shown on Line 99.

Please review these changes to be sure the outcome is what you expected.

@Freedom1095 

@krog57 

[Freedom1095]

Brilliant! That fixes it! The easy step put the amount entered in box 13 of the Federal K1 into line 5 - putting it in line 8 with the code you suggested makes it work fine. Many thanks!

Yes, the amount on my K-1 from my partnership gives a value a few dollars off from box 13 and the line 15f PTET on the state form. Not sure why but I figure I should stick with what they are reporting out. 

Many thanks!!!!