topic How to Exclude 457b deferred comp W2 wages on a MA nonresident return in State tax filing

How to Exclude 457b deferred comp W2 wages on a MA nonresident return

tanatech — Sat, 30 Mar 2024 16:17:17 GMT

Hello,

We live in FL and are filing a MA nonresident return. We received a W2 form showing the annual payout from a 457b Deferred Compensation plan. The plan is setup to pay out over a 10-yr period in equal amounts, therefore, it should not be taxable in MA since we live in FL.

I cannot determine how to exclude the income. Using Turbotax Desktop to file in MA, I am prompted to enter the "Non-MA" portion of the "all states" W2 income from box 11. I enter the full amount -6,000 - in the "non-MA Portion" and click through.

Now Turbotax states "Since you have reported 6,000 of...457 plan distributions that is NOT from MA, we have subtracted that amount from your non-MA wages. (btw there are no non-MA wages). These payments are now reported as Other Income". This is very confusing. In fact, looking at Forms -

MA form 1-NR/PY shows 6,000 dollars taxable income on line 5.

The W2 form shows the 6,000 listed in three boxes - Box 1, Box 11 and box 16. And MA withheld taxes in box 17.

It's not taxable in MA. Please, how do I get Turbotax to remove this from MA taxable income? Is there a field I can override somewhere?

Re: How to Exclude 457b deferred comp W2 wages on a MA nonresident return

tanatech — Mon, 01 Apr 2024 12:38:29 GMT

Do we need to get an amended W2? What is the solution here, Turbotax?

Re: How to Exclude 457b deferred comp W2 wages on a MA nonresident return

AmyC — Tue, 02 Apr 2024 23:34:51 GMT

Your residency does not affect where it was earned. If this is deferred compensation from when you worked in MA, it is taxable income. Look at MA source income in NR/ PY forms and instructions, it states on page 5;

Some examples of the types of income taxable to a nonresident: ◗ All wages, salaries, tips, bonuses, fees and other compensation which relate to activities carried on in Massachusetts, regardless of where or when the compensation is paid;

Re: How to Exclude 457b deferred comp W2 wages on a MA nonresident return

tanatech — Thu, 04 Apr 2024 11:38:35 GMT

There is a federal law passed in 1995 directly addressing state taxation of retirement income for non-residents. The Pension Income Taxation Limits Act "PITLA" states:

No State may impose an income tax on any retirement income of an individual who is not a resident or domiciliary of such State (as determined under the laws of such State).

(b) For purposes of this section—

(1) The term “retirement income” means any income from—....

(F)

an eligible deferred compensation plan (as defined in section 457 of such Code)

Re: How to Exclude 457b deferred comp W2 wages on a MA nonresident return

tanatech — Thu, 04 Apr 2024 11:49:52 GMT

There is also this statement, from the MA non-resdient tax form Schedule 1-NRPY instructions:

"Line 6. Taxable Pensions and Annuities
Nonresidents. Under Title 4 of the USC § 114,
payments to nonresidents from certain qualified
pension plans are not subject to tax.
Qualified plans include:
◗ A qualified trust under IRC § 401(a) exempt
from taxation under IRC § 501(a);
◗ Simplified IRC § 408(k) plans;
◗ IRC § 403(a) annuity plans;
◗ IRC § 403(b) annuity contracts;
◗ IRC § 7701(a) (37) individual retirement plans;
◗ Eligible deferred compensation plans of state
and local governments and tax exempt organiza-
tions as defined by IRC 457..."

BTW. The problem is just an error on the W2. This is being resolved.