Distribution allocation between states

Forum|Forum|4 years ago
March 28, 2022
1 reply
2 views

How does Turbotax allocate IRA distributions and dividends between states? I moved from California to Washington in May 2021 yet Turbotax does not allow me to specify the timing of the distributions. Since the majority of distributions were made after I became a resident of Washington they shouldn't be included on the California tax return. I tried phone support but the person didn't know how to make adjustments.

Best answer by AmyC

I've found the following from previous Turbotax posts.

"Interest and dividend income is generally taxable by the state where you are considered a permanent resident. So if you move from Arizona to California and it's a permanent move, California will tax you on the interest income from your Arizona bank accounts during the time you're a resident of California, and Arizona won't tax you for the same period."

also

"If you are receiving retirement income from a business in your old state but you move to a new state, federal law says that your new state can tax your retirement income, but your old state can't."

So it appears that Turbotax SHOULD provide a method of specifying when in the year these transactions have occurred so Turbotax can allocate to the correct state. I can't find that this is handled correctly, am I wrong?

Only you know how much income you earned where and have bank records, etc as back up, if audited. It is up to you to enter the correct amounts into the program. Please follow these steps:

Open your return
Go to CA
Review residency, became a nonresident during 2021, yes
US resident
# Days in CA
Residency - CA residency information regarding prior years
Need to make payments for prior years? Dependents, Health, etc continue on
Your 2021 CA taxes are ready to check
Select Income and Adjustments
continue through
Income Ca handles differently
Done with adjustments
Nonresident adjustments
continue
Enter CA amounts for each category of income, list only the amounts taxable by CA
continue
Residency information, allocate by resident and nonresident ratios
continue answering questions until done.

Income is now properly allocated and tax can be correctly determined.

E

ErnieS0

Level 15

California taxes the CA percentage of total income and not California-only income. That why all your income is included in the initial computation of your base tax.

For example, if you earned $100,000 total and $30,000 in CA, your tax rate would be based on $100,000. Say the CA tax on $100,000 is $10,000. Then your tax would be 30% ($30,000/$100,000) of $10,000 or $3,000.

If most of you income was received while living in Washington then your California income percentage will be small.

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C

ck36Author

Level 2

Thanks for the response, but I don't think I follow how this is calculated in Turbotax. Using your example, the percentage of the total income from California is used to calculate the tax. How does Turbotax know how much in dividends and IRA withdrawals I received while residing in each state since there is nothing that I have seen that asks when in the year I received it? For example, if I received a stock dividend of $1000 in November when I was a permanent resident of Washington, that should not be included in the California return. But Turbotax doesn't provide a method of specifying the date or state where this was received.

(Note that I am only asking about dividends and IRA withdrawals, not wages or earned income which I know that California still taxes regardless of my state of residence.)