TT is adding a deductible IRA contribution back in to Minnesota taxable income. TT says it is doing this because the spouse is over 70 1/2 and the spouse is not.

[tstuma3]

Is anyone else having this issue with TT?

[BillM223]

Is it possible that you were over 70 1/2 on January 1, 2021 (and not your spouse)?

The Minnesota instructions for line 2 on Schedule M1NC state "If your filing status is married filing jointly and you or your spouse are over age 70 1/2 at the beginning of 2021, enter the full amount of the deduction claimed on line 20 of Schedule 1 on line 2 of Schedule M1NC."

So if either you or your spouse is over 70 1/2, then an IRA deduction for either of you (no matter your individual ages) is disallowed for purposes of Minnesota state income. "Disallowed" means that the IRA contribution on the 1040 is added back to Minnesota state income on line 2 of form M1NC, and it flows from through through the M1M and M1.

@tstuma3

[tstuma3]

Yes, it is true that I am over 70 1/2 and my spouse is not, however, the rule in MN is that the spouses are considered separately. This means that one can be over the required age and the other under the age and should allow the spouse under 70 1/2 to deduct the IRA. I have been in contact with the MN DOR and they agree that TT has an issue with this. The State of MN has emailed me that their efile coordinators have sent this issue to TT for correction.

[tstuma3]

You are reading the instructions incorrectly. The IRA deduction should not be added back to MN income.

[tstuma3]

HELP TT - It has been over a month since I began posting the error TT has with the MN tax software. To date, I have not received any response that it is being worked on. I was able to get the Minnesota Department of Revenue contact TT to have them correct the issue, but still nothing. How can I get a response?

[BillM223]

I have been in communication with the MN Department of Revenue Income Tax and Withholding Division, and they confirmed that if either spouse if over 70 1/2 than the IRA deduction on the federal return may be allowed in Minnesota, subject to conditions.

They pointed me to the full instructions for line 2 on MN form M1NC. Look to the bottom of the form, where the instructions are. 

Their email said in part: "

Scenario 3:

If your filing status is married filing jointly and you OR your spouse are OVER age 70 1/2 at the beginning of 2021:

• Enter the full amount of the deduction claimed on line 20 of Schedule 1 on line 2 of Schedule M1NC.
• When you have completed any other required adjustments on Schedule M1NC, complete Worksheet for line 33 - Minnesota IRA Deduction.
• Enter 0 on step 20 of that worksheet when you are asked to enter your federal IRA deduction from line 20 of federal Schedule 1.

"

This is your scenario, so I leave out the other ones that don't apply to you.

On page 7 of the form M1NC (which includes the instructions), there is a lengthy worksheet called the "Line 33 — IRA Deduction". TurboTax completes this worksheet (see the form called "IRA Deduction" in your Forms), but the net effect is this: you start on form M1NC with the amount of the federal IRA deduction, then you complete the Line 33 worksheet to see if anything is to be removed from this adjustment. In the vanilla case, the entire IRA number is set to negative, so it offsets the deduction on line 2 (M1NC), and there is no change to federal adjusted gross income on the M1 (which means that you get to keep the IRA deduction).

HOWEVER, the Line 33 - IRA Deduction worksheet includes a lot of variables, such as whether or not you or your spouse is covered by a retirement plan at work, whether or not you or your spouse received Social Security, and a number of other items. 

In one test, when I indicated that the working spouse was not covered by a retirement plan at work and also that neither spouse was receiving Social Security, then the last line on the worksheet was a -6,000 (the IRA contribution was 6,000), which negated the 6,000 contribution on the M1NC, which meant that the IRA contribution was NOT added back to state income.

HOWEVER, when I indicated that the working spouse was covered by a retirement plan at work and that the other spouse received 15,000 in Social Security, then the -6,000 went to zero as a result of the line 33 - IRA Deduction Worksheet, so the 6,000 on form M1NC was not zeroed out, and the entire 6,000 was added back to state income, making the IRA contribution taxable in Minnesota.

In short, the IRA deduction may or may not be added back to state income if either spouse if over 70 1/2, based on a number of factors. I encourage you to find the IRA Deduction worksheet and form M1NC and work out whether or not you are actually eligible to deduct the federal IRA deduction in Minnesota.

Here is the entire text of the email from the MN DOR:

**********************

Thank you for your email.

Look at the Line 2 instructions on this form. It discusses four different scenarios. 

Scenario 1:

If your filing status is single, head of household or married filing separately and you are over the age of 70 1/2 at the beginning of 2021:

• On line 2 of Schedule M1NC, enter the full amount claimed on line 20 of federal Schedule 1 and do not complete the Worksheet for Line 33 - Minnesota IRA Deduction.

Scenario 2:

If your filing status is married filing jointly and you AND your spouse are OVER the age of 70 1/2 at the beginning of 2021:

• On line 2 of Schedule M1NC, enter the full amount claimed on line 20 of federal Schedule 1 and do not complete the Worksheet for Line 33 - Minnesota IRA Deduction.

Scenario 3:

If your filing status is married filing jointly and you OR your spouse are OVER age 70 1/2 at the beginning of 2021:

• Enter the full amount of the deduction claimed on line 20 of Schedule 1 on line 2 of Schedule M1NC.
• When you have completed any other required adjustments on Schedule M1NC, complete Worksheet for line 33 - Minnesota IRA Deduction.
• Enter 0 on step 20 of that worksheet when you are asked to enter your federal IRA deduction from line 20 of federal Schedule 1.

Scenario 4:

• If your filing status is married filing jointly and you AND your spouse are UNDER age 70 1/2, do not enter an amount on line 2 of Schedule M1NC.  

Hope this clarifies.  Please contact us if you have any more questions.

Thank you,
Income Tax and Withholding Division

Phone: 651-296-3781 or 1-800-652-9094 (toll-free)
Hours:  8 a.m. to 4:30 p.m. Mon. - Fri.
Email: individual.incometax@state.mn.us

Phone: 651-282-9999 or 1-800-657-3594 (toll-free)
Hours:  8 a.m. to 4:30 p.m. Mon. - Fri.
Email: withholding.tax@state.mn.us

******************************

@tstuma3

[tstuma3]

To respond: First,Line 2 of the M1NC reads as follows: Deductions for IRA contributionsfor individuals over 70 1/2. Myspouse is not over 70 1/2. Second,the instructions for completing the line 33 for are as follows (I emboldenedthe pertinent instructions for completing the form): Line33 — IRA Deduction If neither you or your spouse are covered by a retirement plan at work and were not required to determine a deduction limitation based on income on your federal return, do not complete the Worksheet for Line 33 - Minnesota IRADeduction The line 33 worksheet is intended to compute an IRA deduction for those whohave an employer plan and whose income exceeds the thresholds. Third,to further clarify, if you didn't follow the above instructions, line 1 of theworksheet says: Were you covered by a retirement plan? Answer Yes or NO on Step 1 If you answered No, see instructions. This should clarify that TT is reading the instructions incorrectly.

[tstuma3]

When you read "you OR your spouse are OVER age 70 1/2", MN DOR is intending that to mean that the spouse who is over 70 1/2 should enter their IRA contribution.  It does not mean that the spouse under 70 1/2 should enter their IRA contribution.

[fanfare]

That's pretty kooky worksheet !

BUT

If you were age 70 1/2 or older at the end of 2021, you stay away from the Worksheet.

That leaves the person under age 70 1/2.

[tstuma3]

The worksheet is only for those with a retirement plan at work and whose income for a deductible IRA is over the threshold. We do not have a plan at work, but TT is using the worksheet anyway and doing so incorrectly.

[fanfare]

You probably want to do an override and file your state tax return on paper at the Post Office.

[tstuma3]

The worksheet is only for those with a retirement plan at work and whose income for a deductible IRA is over the threshold. We do not have a plan at work, but TT is using the worksheet anyway and doing so incorrectly..

@BillM223 

[tstuma3]

The worksheet is only for those with a retirement plan at work and whose income for a deductible IRA is over the threshold. We do not have a plan at work, but TT is using the worksheet anyway and doing so incorrectly..  Hope you get this post.

@BillM223 

[tstuma3]

To respond: First, Line 2 of the M1NC reads as follows: Deductions for IRA contributions for individuals over 70 1/2. My spouse is not over 70 1/2. Second, the instructions for completing the line 33 for are as follows (I emboldened the pertinent instructions for completing the form): Line33 — IRA Deduction If neither you or your spouse are covered by a retirement plan at work and were not required to determine a deduction limitation based on income on your federal return, do not complete the Worksheet for Line 33 - Minnesota IRA Deduction. The line 33 worksheet is intended to compute an IRA deduction for those who have an employer plan and whose income exceeds the thresholds. Third, to further clarify, if you didn't follow the above instructions, line 1 of the worksheet says: Were you covered by a retirement plan? Answer Yes or NO on Step 1.  If you answered No, see instructions. This should clarify that TT is reading the instructions incorrectly.  @BillM223 

[JB2720]

Has there been any updates to this?