In NY RMD is not taxable from an inherited IRA, how do I do that on Turbo Tax on the 1099R form or worksheet?

The RMD is included in the Federal AGI, which transfers to the state return. In the state interview, you will be asked for any qualified deductions. This will be entered as a Pension and annuity income exclusion, on Line 29 of the NY form.

" If you received a decedent’s pension and annuity income, you may make this subtraction if the decedent would have been entitled to it, had the decedent continued to live, regardless of your age. .....The total pension and annuity income exclusion claimed by the decedent and the decedent’s beneficiaries cannot exceed $20,000." Reference page 19 at https://www.tax.ny.gov/pdf/current_forms/it/it201i.pdf

Hold on a minute.  NY has a pension and annuity income exclusion, but we're talking about an IRA inherited.

Do the same rules apply?

Yes. Reference: https://www.tax.ny.gov/pdf/publications/income/pub36.pdf, which says, in part, 

"Income from pension plans described in section 114 of Title 4 of the U.S. code received while a nonresident of New York State is not New York source income and should not be included in the New York State amount column on Form IT-203".  That includes IRAs.

 

It also says "If the deceased individual has more than one beneficiary, the $20,000
maximum amount of the pension and annuity exclusion must be allocated
among the beneficiaries. Each beneficiary’s share of the $20,000 exclusion
is determined by multiplying $20,000 by a fraction whose numerator is the
value of the pensions and annuities inherited by the beneficiary, and whose
denominator is the total value inherited by all beneficiaries of the deceased
individual’s pensions and annuities. The total exclusion of the deceased
individual and all beneficiaries cannot exceed $20,000 annually. "

I am filing a non-resident return for NY (IT-203). I am reporting a 1099-R RMD for an inherited IRA. I am one of 2 beneficiaries (50% each). Despite my reporting that I am only 50% beneficiary, TurboTax is deducting the full amount (which is greater than $10,000 but less than $20,000) under NY subtractions. Shouldn't the deduction be limited to $10,000 (since I got only 50% of inheritance)?  Thanks.

If you do not live in New York the pension is taxable to the state where you live, even if the 1099-R is from a company in New York.

 

If this is the only income you are claiming for New York then you do not need to file a New York Tax Return.

 

 

My W2 is from NY, so I definitely need to file a NY state return.  My question is really about the NY state return.  If I have a RMD from an inherited IRA for $15,000 and I only inherited 50% of IRA, then what should the NY subtraction be on line 28 of the NY state return:  $10,000 or $15,000 or $0?  TruboTax is putting in $15,000 which seems wrong to me.

 

Thanks.

BTW, 1099R is not from NY.  I am filing a NY nonresident return because I live in NJ and work in NY.

Since you are a nonresident of New York, per Publication 36 from the New York State Department of Taxation, income from pension plans, including Individual Retirement Accounts, received while a nonresident of New York State is not New York source income and should not be included in the New York State amount. (Please see page 9)

 

If you were a resident of New York you would be eligible for a pension and annuity income exclusion of up to $20,000. However, this exclusion would be allocated among all the beneficiaries of the inherited pension or annuity. 

 

@atte

 

 

Thanks, but I'm still a bit confused.  Should the income from the inherited IRA show up as an exclusion on line 28 of the Federal column but not the NY State column, or in neither column?  TurboTax is putting in line 28 of the Federal column, but not the NY State column.

Yes, that is correct. The exclusion should be listed in the Federal column of Form IT-203 line 28; but, since it is not New York source income, it should not be included in the New York State column on line 28. Please see "Line 28 – Pension and annuity income exclusion" at the bottom of page 27 in the Instructions for Form IT-203.

 

You will need to include the distribution from the inherited IRA as income on your resident state return.

 

@atte

The problem is that TurboTax is including my entire RMD distribution from the inherited IRA ($15,000) in the Federal amount column on line 28, even though I put down that I'm beneficiary of only 50% of the inherited IRA.  According to the Line 28 instructions, that should be limited to $10,000 (50% of $20,000).  Is this a bug in TurboTax?  I don't see how $15,000 is the correct amount according to the instructions.  

The software can't adjust for a 1099-R with the full distribution but you only got 50%

You'll have to fudge the entries.

You should attach an explanation to your return, or have one ready when IRS contacts you,

Any idea why TurboTax can't deal with this?  It doesn't seem that difficult, given that I've been asked what percentage of the total I've inherited:

Line 28 on IT203 should just be

min(percentage * $20,000, amount of my annuity)

 

And how do I even fudge TurboTax to put in the proper amount (I'm using online version)?

TurboTax will calculate the correct amount to include on line 28 of Form IT-203. I created a “mock” return using the information you provided and was able to get the correct results on the New York return. However, in order to get the program to calculate your state return correctly, you will need to delete your 1099-R entry and re-enter it. Please follow the steps below and refer to the screenshots to get the correct results:

 

1. Click on Wages and Income at the top of the screen
2. Scroll down to IRA, 401(k), Pension Plan Withdrawals (1099-R) and click Edit/Add
3. Select Delete next to your IRA distribution and click Yes to confirm
4. Then select “Add another 1099-R” and enter the information from your Form 1099-R
5. Scroll down to the State Information section (boxes 12 – 14) and enter the State IDs in Box 13 (Enter both NY and your resident state) and the State Distribution Amounts in Box 14. (Do this even if the information is not reported on your 1099-R) This is necessary to get the program to calculate the state returns correctly. Please see screenshot below:

 

         

6. Scroll down and select Continue. Your next screen should look like the screenshot below: 

 

 

 

       

 

  7. Select NY and your resident state and then click Continue. Next you should see the following screen:

 

 

       

 

8. Select the appropriate options and enter the distribution amount. Next you will see the question “Did Taxpayer’ Inherit the IRA?” Select Yes and enter the other information.

9. Keep going through the screens and selecting Continue until you get back to the “Wages and Income” section.

10. Click on State from the menu on the left-hand side and then select Edit next to New York

11. Click on “Go over New York again” at the top and answer all the questions

12. Next Click on Review to make sure there are no errors

 

 

Now you should see the correct amount ($10,000) reported in the Federal Column of line 28 on Form IT-203 and the New York column should still be 0. The federal column includes all of your income and exclusions as if you were a New York resident and the New York column only includes income and exclusions that are actually taxable to New York. 

 

@atte

 

TurboTax will calculate the correct amount to include on line 28 of Form IT-203. I created a “mock” return using the information you provided and was able to get the correct results on the New York return. However, in order to get the program to calculate your state return correctly, you will need to delete your 1099-R entry and re-enter it. Please follow the steps below and refer to the screenshots to get the correct results:

 

1. Click on Wages and Income at the top of the screen
2. Scroll down to IRA, 401(k), Pension Plan Withdrawals (1099-R) and click Edit/Add
3. Select Delete next to your IRA distribution and click Yes to confirm
4. Then select “Add another 1099-R” and enter the information from your Form 1099-R
5. Scroll down to the State Information section (boxes 12 – 14) and enter the State IDs in Box 13 (Enter both NY and your resident state) and the State Distribution Amounts in Box 14. (Do this even if the information is not reported on your 1099-R) This is necessary to get the program to calculate the state returns correctly. Please see screenshot below:

 

 

6. Scroll down and select Continue. Your next screen should look like the screenshot below:

​​​​​​​

 

 

 

7. Select NY and your resident state and then click Continue. Next you should see the following screen:

 

 

 

8. Select the appropriate options and enter the distribution amount. Next you will see the question “Did ‘Taxpayer’ Inherit the IRA?” Select Yes and enter the other information.

 

9. Keep going through the screens and selecting Continue until you get back to the “Wages and Income” section.

 

10. Click on State from the menu on the left-hand side and then select Edit next to New York

 

11. Click on “Go over New York again” at the top and answer all the questions

 

12. Next Click on Review to make sure there are no errors

 

 

Now you should see the correct amount ($10,000) reported in the Federal Column of line 28 on Form IT-203 and the New York column should still be 0. The federal column includes all of your income and exclusions as if you were a New York resident and the New York column only includes income and exclusions that are actually taxable to New York. 

 

@atte

Thanks for that very details response!  I will give that a shot.

Just to follow up, I followed your instructions:  deleted 1099-R and re-entered it with NY added as a state.  Didn't make any difference in NY state return.  It still subtracts the full IRA distribution amount despite my putting down that only 50% is my inheritance.

 

This really shouldn't be that hard.

What if two people inherit an IRA and only one is a New York resident.  Can the NY resident deduct the full 20K?

"the $20,000 maximum amount of the pension and annuity exclusion must be allocated
among the beneficiaries"

 

It doesn't say "among the New York resident beneficiaries."

I just went through the same thing, and spoke to an agent. She pointed out (after doing some research) that if the decedent was not a NY resident, the exclusion is not available to the beneficiary even if the beneficiary is a NY resident. Any thoughts? 

That appears to be the case.  The NY pension exclusion is for NY residents age 59.5 or older who receive pension and annuity income which must be: 

• included in federal adjusted gross income (FAGI); 

• received in periodic payments (except IRA or Keogh); 

• attributable to personal services performed by the individual before their retirement; and

• from an employer-employee relationship or from an employee’s tax deductible contributions to a retirement plan.

 

If a NY resident is the beneficiary of a pension from a decedent who had they lived would have received the exclusion, then the beneficiary would also be eligible for the exclusion.

 

Therefore neither you nor the decedent meet the qualifications for the exclusion.  

 

Here is a NY FAQ with more information.  You can also verify on pages 13 and 14 in this NY Publication 36.  

Thanks for pointing that out. I wasn't picking up on the fact that as a non-resident of NY, the decedent would not have been entitled to this exclusion had he lived, and therefore, the exclusion doesn't apply to the beneficiary. (In other threads, some people are saying that the decedent does not have to have been a NY resident, but I see your point and think you are correct.)

Thanks again!