Federal CSRS Retiree in PA - took withdrawl of 85K from TSP and TurboTax says I owe PA tax

[ScotManG]

Why?  I retired 12/31/2021 from the Federal Government as a CSRS annuitant and also had contributed to the Thrift Savings Plan (TSP) during my career.  In Sept of 2022, I withdrew $85K from the TSP and got my 1099-R in the mail.  Now, doing my taxes in TT, when I enter the values from the 1099-R (from TSP), everything is fine until I put in Code 7 in Box 7 and suddenly my PA taxes in shoot up $2600!  The TSP, my understanding, should NOT be taxed in PA, correct?  I did have Federal Tax withdrawn on this distribution and the Federal Tax side reflects this properly, but PA suddenly thinks I'm not eligible.  Also, during tax year 2022 (my first year of retirement), I am 60 years old and turned 61 in October of 2022.  What I am missing here and why is PA taxing this 1099-R withdrawal from my TSP as TAXABLE when everything I read out there says PA should not be taxing this?  Any help is greatly appreciated!  Thank you so much as this is obviously my first year in retirement to do my taxes.  I don't understand why I have to pay PA $2600+ in taxes.

[DanaB27 · Accepted solution]

Yes, retirements aren't taxed in PA if you have Code 7 distribution and meet the requirements.

 "Code 7 Normal Distribution: This distribution from an eligible Pennsylvania retirement plan is not taxable if you met the plan requirements (the age and/or years of service required by the plan) for retirement, and retired after meeting those requirements." (PA DOR)

You might need to check your selection on the “What kind of retirement income do you have from Pennsylvania?” screen during the state interview.

[ScotManG]

Thank you!  I checked in the State area (hadn't gotten there yet so I jumped ahead) and you are absolutely correct, I had to identify it as a qualified plan and <bingo!> my PA state tax went right back down to where it was before I entered that 1099-R!   Thank you so much!