Nonqualified Pension Plan i.e., an Amount in Box 11

[jsanta2]

My W-2 has an amount in Box 11.  There is a "PA" in box 15 and State ID.  Since PA does not tax pensions there is zero in Box 16 (State Wages) and zero in Box 17 (State Income Tax).  Turbo Tax prompted me to enter a state associated with this income so I entered "Pennsylvania".  When Turbo Tax does the final review it says that the state I entered does not match a state entered in Box 15.  I reentered the W-2 and put "PA" in Box 15 but the final review still says it can't match a state in Box 15.  The only way I could pass the review is if I enter PA in Box 15 and enter an amount in Box 16, but I don't want an amount in Box 16 if PA doesn't tax this amount.  How can I keep the W-2 data matching what is on the form  (no amount in Box 16) but still pass the final review?

[ThomasM125]

You can try entering a $0 in box 16 for the state wages if you haven't done that already. Also, you can try entering the state wages in box 16 equal to the distribution listed in box 11, as it may not compute as taxable based on other entries you made.

[jsanta2]

Thanks for the quick reply.  I did try entering zero in box 16, but unfortunately that didn't get rid of the error.  Entering the nonzero amount makes that amount taxable for state income tax purposes...

[SusanY1 · Accepted solution]

Please enter the amount in Box 1 in the space for Box 16. While you may temporarily see running totals change, you can adjust for the state tax treatment in the state tax interview section of the program.  

[btrout]

I have encountered a similar issue.   I tried entering the amount from box 1 in Box 16 as suggested, even though the W-2 has no amount for state wages (box 16).  This alleviates the error on the Federal side but there is an error on the PA state return.   When answering the questions on the state return for this W-2, I checked the box that this is not taxable for PA, as was suggested.   When I run the state check, I receive the following error:  “Gross Compensation Worksheet: Include W-2 as taxable.  Full year PA resident must include all income.  Line item for W-2 number should be marked as taxable to PA.”   It seems to be trying to force it to be taxable for state purposes.  This suggested solution does not seem to work for me.   My W-2 has state code PA in box 15 and an employer’s state ID number but no amounts in state wages or taxes.  I also tried entering nothing in box 15 and 16, but the program then prompts for the state and amount on the following screen.

I’m retired.  This income is from an Excess Pension Plan.  It “is not” money that I put into a typical deferred compensation plan and am now withdrawing.  I contacted my employer and they confirmed it is properly reported and it is not taxable for Pennsylvania purposes.  Please advise. 

Also last year I had the same issue.  I overrode the federal error in review and filed electronically.  For the state I just let the error unresolved and filed a paper return.  I excluded the compensation worksheet and sent in W-2s and 1099-Rs with the state return.  Obviously this is not an optimal thing to do each year.

[DaveF1006]

According to this State of Pennsylvania source, distributions from nonqualified pension sources is taxable income and is not treated as an tax-exempt plan. 

If you feel that this doesn't apply to you, you may leave Box 11 blank if it isn't a distribution taken from a non-qualified plan or a non-qualified 457 plan.  

For your reference, I've included a screenshot from a on-demand tax guidance from TurboTax that states this.

@btrout 

[btrout]

Thank you for the response.  The guidance article you referenced relates to "elective deferrals".  As mentioned in my post this was not a deferral that I made, so this does not apply.  This is a distribution from a pension plan set up by my company where a benefit in the form of an annuity is paid out after retirement.   As a side note, I also have distributions from a regular deferred compensation program where I deferred salary (elective defreral) and am now receiving the distribution.  This is reported on a separate W-2 and this is being treated properly (taxed for both federal and state).   If I leave box 11 blank, wouldn't that result in the compensation being reported on line 1 of the federal return, which would not be correct, since this is pension income?

It seems like the software program should allow the user to exclude the income on the state side of the tax program (similar to income entered for a 1099-R) and not produce errors.  Unfortunately this is not the case.

[DaveF1006]

This sounds like a defined benefit plan, which is typically  a qualified retirement plan. This means it meets the requirements set by the Internal Revenue Code and the Employee Retirement Income Security Act (ERISA) unless it was designed specifically for you as a highly compensated employee. If this was the case, then it's a non-qualified plan because it isn't offered to all employees.

Normally, distributions are reported on a 1099R, but there may have been special circumstances why it was reported on a W2. If this was reported on a 1099R,  It would have been recognized as retirement income and non-taxable in PA. 

Yes, you are correct by leaving Box 11 blank, it is reported on Line 1 as a wage but then an offsetting entry is made in Schedule ! line 8T thus negating the income rendering non-taxable for Federal and PA tax purposes.

@btrout