Additional information of what could be the culprit:
In trying to troubleshoot this, I tried process of elimination.
First, in the federal section, I deleted the second 1099-R (the dummy 1099-R with code JP) leaving only the first 1099-R with code J8. I adjusted my earnings in "Corrective distributions made before the due date of the return" question and my answer to "Contribution Withdrawn Before Due Date of Your Return" accordingly. The result:
- Federal section review correctly reflects the contribution withdrawn.
- In the State (Massachusetts) section, the total federally taxable IRA/Keogh Plan correctly showing only the taxable amount (box 2a) from the 1099-R with code J8.
Next, trying the opposite scenario. I deleted the first 1099-R (the 1099-R with code J8) leaving only the second 1099-R with code JP (the dummy 1099-R). I adjusted my earnings in "Corrective distributions made before the due date of the return" question and my answer to "Contribution Withdrawn Before Due Date of Your Return" accordingly. The result:
- Federal section review correctly reflects the contribution withdrawn.
- In the State (Massachusetts) section, the total federally taxable IRA/Keogh Plan incorrectly showing the gross distribution (box 1) as the taxable amount, instead of taxable amount (box 2a) from the dummy 1099-R with code JP.
This means the culprit is with how TurboTax computes the taxable amount from the dummy 1099-R with code JP in the state (Massachusetts) section. It somehow ignored the excess contribution withdrawn, and incorrectly computes the gross distribution (box1) as the taxable amount. However, TurboTax somehow correctly computes the federal section. Why?
In creating the dummy 1099-R with code JP, I followed the instructions from these threads:
