My Mass state taxes are showing my 1099-R amount in 2020 Form 1, pg. 2 on Line 3 - Wages/salaries/tips. It should show, on Line 4 - Taxable pensions and annuities, right?

[rr341]

Massachusetts Tax guys want to me to correct it

[VolvoGirl]

What code is in box 7 on your 1099R?  For Federal.....There are some reasons it can show up on Wages.  Like Code 3, if you took early disability retirement it will show up as wages until you reach normal retirement age.  

[DoninGA]

It depends.  Disability pensions shown on Form 1099-R if you haven’t reached the minimum retirement age set by your employer would be entered on Form 1040 Line 1.

Look at your 2020 Form 1099-R box 7.  What is the code entered in box 7?

If the code entered is a 3 that is disability income and the distribution amount would have been entered on your 2020 Federal tax return as Wages reported on the Form 1040 Line 1.  This amount would flow to your MA Form 1 as wages on Line 3.

If this is the case for you then you need to speak with a MA Tax agent to determine if the amount shown on your MA Form 1 is correct as filed.

[rr341]

Hi DoninGA - Thanks for the prompt reply.

It is Code 8. And the MA Tax person agreed, when I called him, that he sees that Turbotax has included it with Wages. He felt it should be shown separately under Taxable Pensions and Annuities

Code 8 is Used for corrective distributions of excess deferrals, excess contributions, and excess aggregate contributions

[DoninGA]

If that is what MA requires then you should follow their lead and report the income in Line 4 of Form 1.  Can this be handled by the MA tax agent or does this require you to file an amended 2020 Form 1 for MA?

[rr341]

Hi DoninGA -

They asked me to file an amended return - which I will do. I was a little surprised that the TurboTax software didn't put 1099R Code 8 into Line 4 - i.e. didn't separate the amount instead clubbed it with Wages (Line 1). Maybe I had done something wrong, I thought..

[DoninGA]

Let me page one of our retirement plan experts to see if they have a different take on this situation 

@dmertz could you assist with this issue concerning a code 8 in box 7 of the Form 1099-R and the state of Massachusetts claiming it should be entered on the MA Form 1 Line 4 of the return as Taxable Pensions and Annuities 

[dmertz]

I assume that the From 1099-R does not have the IRA/SEP/SIMPLE box marked and because that the MA tax person is expecting it to be present on line 5 (not line 4) Form 1 line 4.  This Form 1099-R indicates that there was a return of an excess deferral, perhaps because the plan failed ADP or ACP testing.  The amount of the excess deferral is includible on Form 1040 line 1 because it had been excluded from box 1 of your W-2.  See the first bullet on page 11 of the 2020 IRS Pub 525:

https://www.irs.gov/pub/irs-prior/p525--2020.pdf

[rr341]

Thanks @DoninGA . Hi @dmertz  - Form 1099-R does not have the IRA/SEP/SIMPLE box marked. The MA tax person is expecting it to be present on Line 4.

INCOME

3 Wages, salaries, tips and other employee compensation (from all Forms W-2)

4 Taxable pensions and annuities.

You are right that this Form 1099-R was a return of an excess deferral because the plan failed ADP or ACP testing. Thanks for pointing me to Page 11 of the 2020 IRS Pub 525 which states that this excess deferral amount needs to be added to your wages on your 2020 tax return. And therefore NOT on Line 4 of the MA Tax Return. I will call the MA Tax folks tomorrow morning and update this message thread.

You have been an excellent help....Thanks

[dmertz]

Sorry for the confusion about line numbers.  I was referring to line 5 (a and b)  of Form 1040 which does correspond to line 4 of MA Form 1.  I've edited my previous reply.

[dmertz]

One other thought.  If the amount reported on the code-8 2020 Form 1099-R is just the amount of earnings attributable to a 2019 excess deferral corrected in 2020 (which would be reported on a code-P 2020 Form 1099-R), the code-8 amount should probably be reported as Other income (2020 Schedule 1 (Form 1040) line 8 which would appear on MA Schedule X line 4 and Form 1 line 9, although the effect would probably be the same as reporting it on MA Form 1 line 4.  I think that only the amount of the excess deferral itself should be treated as wages on the tax return for the year that the excess deferral was made.