CALIFORNIA - TAXING on IRA for NON RESIDENT

[ammason]

CALIFORNIA - TAXING on IRA for NON RESIDENT (PERSON IMMIGRATED PERMANENTLY OVERSEAS)

Turbotax shows an option on personal information to record that a taxpayer actually lives in a Foreign Country.  A taxpayer who then receives an IRA that is taxable at Federal level, is automatically fed across into a State (which is forced to be used) as when entering IRA at Federal level the withholding tax that is deducted at source and reported by default. Technically no state (specifically in this case CA) can tax an IRA received by a nonresident (permanent overseas resident). Turbo Tax should automatically EXCLUDE the IRA amount. It does not) and also any income received overseas cannot be shown as such and is automatically taxed.  There are also no check (validations in the online turbo tax section - California Adjustments —
Nonresidents or Part-Year Residents)

[TomD8]

If CA income tax was incorrectly withheld from your IRA distribution, then you can obtain a refund by filing a non-resident CA tax return on which you enter the distribution amount as a subtraction on line 4b, Column B of Schedule CA (540NR).

https://www.ftb.ca.gov/forms/2023/2023-540nr-ca.pdf

[ammason]

TurboTax should have identified this input and calculated the refund in the first submission. Seems odd that I have to then file submit an amendment.

You gave a link to 540nr – if you look at Column B – the IRA should show in that Column as an EXEMPTION, it is a Federal Regulation that someone domiciled (nonresident of CA) cannot be taxed in CA state. The State residency guidelines also record that an IRA should not be taxed.  2ndly – Overseas interest income earned in the country of no resident domicile is recorded as Foreign Income – this too should be shown as a subtraction in Column B – which would then flow back into Line 14 California adjustments – subtractions. Enter the amount from Schedule CA (540NR), Part II, line 27, column B – Intuit does not bring the correct values across?

[Hal_Al]

It's not clear why you are filing a CA non resident return.  

Your statement "no state can tax an IRA received by a nonresident" is probably not correct.  Technically, it's more like "no state can tax an IRA distribution received by a full year resident of another state". 

If you're required to file a CA return as an ex-pat, then your IRA is probably taxable by CA.

See:

State tax on expatriates

https://ttlc.intuit.com/community/state-taxes/discussion/re-do-expats-need-to-file-state-returns-if-...

https://ttlc.intuit.com/community/state-taxes/discussion/what-is-my-state-of-residence-if-i-don-t-li...

 https://ttlc.intuit.com/community/state-taxes/discussion/re-il-state-taxes-living-in-spain/01/237630...

https://www.greenbacktaxservices.com/blog/tax-for-expats-state-taxation/

[ammason]

Referring to a person who is not an ex-pat of any state in the USA, only lived/worked in CA for 15 years. Recorded domicile is overseas (=FC) native of Southern Africa, then as you state above NO state can tax an IRA distribution received by a full year resident of another state".  On this basis why would the IRA not then show as a subtraction in Part II Income Adjustment Schedule Column B of CA(540NR)?   On a similar aspect when 

Reading California “FTB Publication 1031 - 2023 Guidelines for Determining Resident Status” also appears to state that IRA income is not taxable for a nonresident, as well as interest & dividends that are deemed to be of a source outside of CA, so inquire why interest & dividends should also show as subtractions?