Just wanted to post an update on how I was able to move forward with my situation after talking to a Turbotax specialist.
Here's how I was able to talk to a specialist: click the Help icon on the top right >> type "Talk to a specialist" in the chat >> the AI will ask you "tell me what you need help with?" and point you to existing answers based on what you respond >> if the suggested answers are not what you were looking for, when the AI asks "Did that answer your question?" choose "Not really" and follow the steps to talk with a specialist.
Option 1 - More accurate but not preferred as it requires paper-filing
If you are okay with paper-filing, you could do the following things:
1. In NJ "Other Non-Wage Income", zero out the 1099-MISC NY PFL amount by entering the same amount as a negative on a new line.
- The Turbotax specialist I talked to explained that if you paper-file this won't be a problem as the IRS person reviewing your return would understand what you are trying to do. However, the e-filing system does not accept negative amounts. Also, I was advised that reducing the amount carried over from the federal return would increase your chances of being flagged for audit by the e-filing system. This is because in normal circumstances the state income should not be lower than the federal income.
2. At the same time, in" Summary of Taxes Paid to Other States" manually subtract the NY PFL amount from the total NY income as this number is used in Schedule NJ-COJ box 1 for the calculation of the allowable credit for taxes paid to NY.
In other words, you don't let NJ tax you on NY PFL but also you shouldn't claim credit for it.
Option 2 - Slightly less accurate but preferred as it allows e-filing
1. In NJ "Other Non-Wage Income", keep the 1099-MISC NY PFL amount as is.
2. At the same time, in "Summary of Taxes Paid to Other States" do claim credit for NY PFL by leaving the total NY Amount as is. No action needed here as the total NY amount automatically carries over from your NY non-resident form.
In other words, you are letting NJ tax you for NY PFL but you are also claiming credit for it, which pretty much evens things out.
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I went with Option 2. My total NJ tax ended up being $6 more than what it would have been with Option 1, because including the NY PFL amount pushed part of my income to the next tax bracket in NJ. At least e-filing went through and it should not raise any red flags. Hope this helps.
