On your Pennsylvania (PA) return you would have paid tax on all the money you used to purchase the life insurance policy and you did not have any earnings above that cost basis. This should not be taxable to PA. Be sure you did not put any state amount in the 1099-R.
- In your PA return you will reach the PA Retirement Distributions screen
- When you reach the screen 'What type of income do you have from PA?' Click the dropdown in 'State Type Code'
- Select 'I'm eligible; Plan's eligible, no PA tax'
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