Turbo Tax is taxing my retirement income for the state of Mississippi. By state law, this is not state taxable income. Is there a box I missed?

[BillM223]

The distribution code in box 7 is "2". This indicates an early distribution, exception applies. "Exception" refers to this distribution not being subject to the 10% early distribution penalty. However, the pension administrator still indicated that it was an early distribution.

I checked the 2019 Mississippi instructions - and they reported the same thing, that distributions that pensions that are taxable as early distributions do not qualify for the exemption from Mississippi income tax. In a similar way, in my test, TurboTax 2019 also taxed this distribution in Mississippi.

Let me suggest this.

When you went through the 1099-R interview and went through the Simplified Method calculations, did you check off that you were over the retirement age for the plan (I assume that you are)? That would override the distribution code of "2" and indicate that this is not an early distribution.

If you would do this, then Mississippi would not tax the 1099-R distributions.

@dukes909 

[dukes909]

I’m sorry you don’t understand.  Please refer to the PERS website for the quote I listed earlier.  State retirement benefits are not subject to tax; there is no qualifier for age.  Don’t you think they would tax it at the source when the check is cut like they do for federal taxes instead of not taxing it and then relying on the retiree to figure out what they owe?  Wow.

Second, there was no simplified method calculation and question about age.  Apparently you are looking at something different than the online version I use, which may explain your confusion.

Third I went through a 2.5 phone call today with TT and they AGREED there was a bug since PREVIOUS YEARS WERE CALCULATED CORRECTLY  (I said this before but apparently you ignored it).

No need to reply, I am using H&R Block which calculates correctly  (I mentioned this earlier as well) but was hanging around to help the other folks that have the same problem.

bye

@BillM223 

[BillM223]

I am sorry that we are having trouble communicating.

I will note that the Mississippi State Statutes, Title 35, Part 3, Subpart 2, Chapter 07 states the following:

"100 Amounts received as retirement allowances, pensions, annuities or optional retirement allowances from any Federal, State, and Private retirement system or plan are exempt from State Income Tax."

and

"104 Early distributions from retirement plans do not qualify for this exemption. Although these amounts are subject to state income tax (emphasis mine), there is no early withdrawal penalty for state purposes."

From the context, the only thing that the word "exemption" in paragraph 104 can refer to is "exempt" in paragraph 100; that is, even pensions from state retirement plans are not exempt from State Income Tax if they are early distributions. There is no other way to interpret the plain language of the tax code.

The state statutes can be found here.

It is for that reason that neither TurboTax 2018, 2019, 2020 asks about the source of the pension. If the pension distribution is not an early distribution, then it is taxable in Mississippi, no matter what its source. That's what the law says. And, as you can imagine, if the pension were not an early distribution, it still would not be taxed, because no pension is taxed, whether or not it comes from a state government.

In other states, the source of the pension can determine whether or not the pension is taxable in the state. But since the source of the pension makes no difference in Mississippi, TurboTax does not ask the source - and has not done so for at least the last three years. 

I will repeat that based on the distribution code(s) that you entered on the two 1099-Rs, the pension distributions were described by the plan administrator as "early" and therefore subject to Mississippi tax.

However, if you change the distribution code(s) to "7" (normal), TurboTax will not tax the two distributions. This suggests to me that the problem is that your pension administrator used "7" as the distribution code(s) in 2019, but for whatever reason used "2" in 2020, causing this situation.

I would encourage you to check this on your previous 1099-R(s).

Based on what was entered into TurboTax, it is working in accordance with state law.

[Edited 2/5/2021 9:45 pm CST - I removed the word "Florida" and updated a broken link for the state statutes]

[scottg29]

Based on the message from the previous person,  there does appear to be an issue with TurboTax.  Will this issue be repaired?  I would suspect TurboTax will be getting many more complaints about this one. 

From checking my records, the 1099-R from 2017, 2018, and 2019, all have "2" in Distribution code, just like the one in 2020.  Those previous years, my Mississippi Income Taxes were calculated perfectly.  

Guess I will wait one week and check back to see if it's fixed.  Please let me know if you think something will be done with this issue or not.  

Thanks.

[dukes909]

2013 Mississippi Code
Title 25 - PUBLIC OFFICERS AND EMPLOYEES; PUBLIC RECORDS
Chapter 11 - SOCIAL SECURITY AND PUBLIC EMPLOYEES' RETIREMENT AND DISABILITY BENEFITS
Article 3 - ADDITIONAL STATE RETIREMENT AND DISABILITY BENEFITS
§ 25-11-129 - Exemptions from taxation, execution, and assignment; deductions from retirement allowances for payment of employer or system sponsored group life or health insurance

Universal Citation: MS Code § 25-11-129 (2013)

(1) The right of a person to an annuity, a retirement allowance or benefit, or to the return of contributions, or to any optional benefit or any other right accrued or accruing to any person under the provisions of Articles 1 and 3, the system and the monies in the system created by said articles, are hereby exempt from any state, county or municipal ad valorem taxes, income taxes, premium taxes, privilege taxes, property taxes, sales and use taxes or other taxes not so named, notwithstanding any other provision of law to the contrary, and exempt from levy and sale, garnishment, attachment or any other process whatsoever, and shall be unassignable except as specifically otherwise provided in this article and except as otherwise provided in subsection (2) of this section.

I've used 2 other online tax preparers now, both calculate it correctly, as did TT prior to this year.  Yes, your code has changed and is not reflecting what is state law.

@BillM223 

@scottg29 

[dukes909]

And, from the same Department of Revenue code that you keep quoting (incorrectly).  The law referred to below is what is the state code 25 in my follow up to this reply.

102 Retirement pay, pensions and retirement allowances are income to the recipient unless excluded in whole or in part by law.

@BillM223 

@scottg29 

[dukes909]

Seems TT is deleting my replies.  Here is the relevant section from Mississippi State Code establishing the Public Employees Retirement System:

2013 Mississippi Code
Title 25 - PUBLIC OFFICERS AND EMPLOYEES; PUBLIC RECORDS
Chapter 11 - SOCIAL SECURITY AND PUBLIC EMPLOYEES' RETIREMENT AND DISABILITY BENEFITS
Article 3 - ADDITIONAL STATE RETIREMENT AND DISABILITY BENEFITS
§ 25-11-129 - Exemptions from taxation, execution, and assignment; deductions from retirement allowances for payment of employer or system sponsored group life or health insurance

Universal Citation:MS Code 25-11-129

(1) The right of a person to an annuity, a retirement allowance or benefit, or to the return of contributions, or to any optional benefit or any other right accrued or accruing to any person under the provisions of Articles 1 and 3, the system and the monies in the system created by said articles, are hereby exempt from any state, county or municipal ad valorem taxes, income taxes, premium taxes, privilege taxes, property taxes, sales and use taxes or other taxes not so named, notwithstanding any other provision of law to the contrary, and exempt from levy and sale, garnishment, attachment or any other process whatsoever, and shall be unassignable except as specifically otherwise provided in this article and except as otherwise provided in subsection (2) of this section.

(2) Any retired member or beneficiary receiving a retirement allowance or benefit under this article may authorize the system to make deductions from the retirement allowance or benefit for the payment of employer or system sponsored group life or health insurance. The deductions authorized under this subsection shall be subject to rules and regulations adopted by the board.

@scottg29 

@BillM223 

[Dixiefire53]

I called my State PERS office and this is what that said.  "Apparently this is a problem with turbotax. Pers suggest using a different software because it is not taxable in ms"

I found in a PERS forum, turbotax thinks PERS is from an IRA.  

[dukes909]

For the 3rd time TT has deleted my post from Mississippi code 25 regarding the establishment of the Public Employees State Retirement System.  Here it is again for the folks playing along at home. 

2013 Mississippi Code
Title 25 - PUBLIC OFFICERS AND EMPLOYEES; PUBLIC RECORDS
Chapter 11 - SOCIAL SECURITY AND PUBLIC EMPLOYEES' RETIREMENT AND DISABILITY BENEFITS
Article 3 - ADDITIONAL STATE RETIREMENT AND DISABILITY BENEFITS

§ 25-11-129 - Exemptions from taxation, execution, and assignment; deductions from retirement allowances for payment of employer or system sponsored group life or health insurance

Universal Citation: MS Code § 25-11-129 (2013)

(1) The right of a person to an annuity, a retirement allowance or benefit, or to the return of contributions, or to any optional benefit or any other right accrued or accruing to any person under the provisions of Articles 1 and 3, the system and the monies in the system created by said articles, are hereby exempt from any state, county or municipal ad valorem taxes, income taxes, premium taxes, privilege taxes, property taxes, sales and use taxes or other taxes not so named, notwithstanding any other provision of law to the contrary, and exempt from levy and sale, garnishment, attachment or any other process whatsoever, and shall be unassignable except as specifically otherwise provided in this article and except as otherwise provided in subsection (2) of this section.

(2) Any retired member or beneficiary receiving a retirement allowance or benefit under this article may authorize the system to make deductions from the retirement allowance or benefit for the payment of employer or system sponsored group life or health insurance. The deductions authorized under this subsection shall be subject to rules and regulations adopted by the board.

@Dixiefire53 

@scottg29 

[Dixiefire53]

I am sure TT will delete this.  TT is showing I owe $1,578 to the State of Mississippi after I entered my 1099-R.  I just spend most of the day using H&R block online tax prep and it shows me getting $501 back from the State of Mississippi after entering my 1099-R.  There is defiantly something wrong with TT.  H&R block did not apply state income tax, they followed MS state law.  I hate to say this, I am leaving TT after using them for the last 9 years.  

[scentophile]

My husband also has the PERS retirement. In past years the distribution code was 2 and the tax was figured correctly. Of course we now know it isn't being figured the same way this year and causing Mississippi taxes to be assessed. Based on a comment in this thread I changed the distribution code to 7 on the federal portion of TT. I have no idea what this means but it left my federal tax owed the same but took away the Mississippi tax it showed that I owed on the PERS retirement. Can anyone with knowledge say if this is a good idea/work around or a bad idea. Please say why if it's not a good idea. I'm not filing until I hear from someone about this. thx!

[scentophile]

Meant to reply to you instead of someone else. Find that comment below:

My husband also has the PERS retirement. In past years the distribution code was 2 and the tax was figured correctly. Of course we now know it isn't being figured the same way this year and causing Mississippi taxes to be assessed. Based on a comment in this thread I changed the distribution code to 7 on the federal portion of TT. I have no idea what this means but it left my federal tax owed the same but took away the Mississippi tax it showed that I owed on the PERS retirement. Can anyone with knowledge say if this is a good idea/work around or a bad idea. Please say why if it's not a good idea. I'm not filing until I hear from someone about this. thx!

[scottg29]

Yes, that does work.  However, don't know about the legal issues with changing what was on the original 1099-R in order to correct the tax.  I'm hoping someone from TurboTax will respond as to if they plan on correcting an issue/error in their software.  Going to wait a week and see what happens.  I like TurboTax, been using it for well over 20 years now.  However, I am prepared to go with another tax software if  needed.

[Knewman331]

I am having this same problem.  I am glad that I am now seeing this thread and learning that it is a global issue.  I live in Mississippi and receive a public safety pension (and have for the last 14 years) from the Louisiana State Employees' Retirement System.  Since during that time I was under 59 1/2 my distribution code on my 1099-R was 2 (Early Distribution - WITH EXCEPTION).  For the last 10 or so years Turbo Tax has recognized the 2 code as being a qualified distribution and the pension was not considered taxable income in Mississippi.  Apparently, they can now not figure out the difference between code 1 (Early Distribution) and code 2 (Early Distribution - WITH EXCEPTION).

As stated earlier, the fix appears to be to dump Turbo Tax and go with H&R Block since Turbo Tax apparently can't figure this out.  We plan to request a refund and move on.  I don't need this stress.

[SteveInMS]

I opened my 2019 turbo tax to compare and the software updated before it opened my file and instead of the refund we received, it now shows we have a tax liability.  This is a major issue that the software changes previously filed returns.  Whoever has misinterpreted this needs to get it fixed quickly or there will be a lot of Mississippi filers who have to go to another tax filing software.