You are correct: per NYS Tax Law (specifically Section 612(c)(3-a)), non-periodic/lump-sum distributions from deferred compensation plans like the NYSDC are not eligible for the $20,000 Pension and Annuity Exclusion.
You can try the following to manually override the amount the program thinks is eligible within the New York State section of the program.
- Open or continue your return.
- Under State Taxes tab, Proceed through the interview screens until you find "Changes to Federal Income."
- Under "Wage and retirement adjustments", Click on Start/Update next to "Received retirement income."
- On your of your 1099-R distributions Summary. Click Edit next to the NYSDC distribution.
- Continue through the screens until you reach the "Governmental Pension Exclusion" (or a screen asking about the amount of pension/annuity exclusion), and Enter $0 in the box asking for the amount of this distribution that qualifies for the exclusion (Form IT-201, Line 29 should now be zero).
You can also check... Under the Federal 1099-R entry, make sure the "Where is this distribution from?" screen does NOT have "NY State or Local Government" selected if it's a 457(b) NYSDC payment.
Selecting "NY State/Local Government" sometimes triggers the Full Exclusion (Line 26), which is for traditional pensions. The correct federal selection is usually "None of the above" or "Qualified Plan," which then lets the State section handle the $20k rule (correctly excluding it).
Warning: If you leave that $20,000 exclusion on your return for a non-periodic NYSDC payment, the NY Department of Taxation and Finance's automated system will flag it (if your 1099-R shows a lump sum, they will likely send you a bill for the difference plus interest later this year).
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