I am very frustrated about Turbo Tax for Alabama state tax filing. For several years I have called in to help desk to comment on the issue of pension income added to state income tax. My pension, which is a defined benefit plan, is from a non-qualified plan managed by Fidelity. I get a W-2 instead of a 1099R since it is for a non-qualified plan. Even though this is not taxable in Alabama, it is almost impossible to get the income removed from my state tax return. I also do taxes for my brother in Pennsylvania, and Turbo Tax for PA has a very simple process to remove qualified pension income from taxable income. Why can't Turbo Tax replicate this simple process for Alabama?? I have to enter zero for taxable income on the W-2 entry, and then skip the State tax check to keep Turbo Tax from adding this pension income back to the total taxable income.
Has anyone come up with a better solution>
I'm not specifically familiar with AL rules or the AL TurboTax (TT) software.
But, a frequent reason for getting a W-2, instead of a 1099-R is because the pension is classified as a disability pension. In some TT state software, you will be asked if you have disability pay. That will qualify for the state exclusion.
Thanks but this is not my issue. The reason my pension distribution comes on a W-2 is because it is a non-qualified pension, which is due to the income level I was earning while working for PepsiCo. I had both a qualified and non-qualified pension at retirement. I rolled over the qualified pension, and took an annuity payout for the non-qualified portion. I talked to Fidelity several times about reporting the distribution on a 1099-R instead of a W-2, but they said it is IRS rules to report it on a W-2. I also spoke to an Alabama department of revenue manager, and she confirmed that the non-qualified defined benefit pension distribution is not taxable to Alabama. So the problem is with TurboTax, which for AL does not have a clear way to exclude income that is not taxable in AL. Once again, I ask TT to look at the PA tax software which has a very simple way to identify income that is not taxable in PA.
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