Live in MA, work in RI filing nonresident return in RI. Why is RI taxing my retirement disbursement?

[PVCK]

Why would my non-resident state be taxing me on my retirement disbursement?  I paid state and fed taxes on the disbursement and now RI expects to tax it as well on the non-resident return.  Seems unreasonable or is there an adjustment to make to the NR RI return in TurboTax?  It is using the fed adjusted income that seems to be the problem.  Making a large difference in the result.  Owe RI vs getting money back (which I should since I do not live there).

thanks

[ErnieS0]

Yes. Adjust the amount of pension taxable to Rhode Island on the screen Rhode Island Pensions and Rents. Enter $0 for the Rhode Island amount and it will not be added to Rhode Island income.

[hbl3973]

There are two things that come into play here:

(1) For those born on or before Nov. 1, 1955, and with income below a certain threshold ($87,200 Single, $109,050 Married Filing Jointly), the first $15,000 of many types of pension income (but not IRA income) is exempted from RI income tax.  TurboTax should handle this automatically.

(2) RI has a progressive income tax which means that the tax rate on higher incomes is more than on lower incomes.  For part-year and non-residents, it uses the unitary taxation method.  In this approach, a tentative tax is first computed based on the taxpayer's total income, irrespective of where earned, and then multiplies it by the percentage of that income earned from RI sources.

Conclusion: taxpayer should not manually zero out their pension income as (1) covers what should be removed and (2) implies that manually zeroing may illegitimately reduce the rate at which the RI portion of income is taxed.

References: 

https://tax.ri.gov/media/19126/download?language=en

https://tax.ri.gov/sites/g/files/xkgbur541/files/notice/Pub_2021_02_pension_income_guide_04_06_21.pd...

[PVCK]

Another helpful person contradicted what you suggested, saying I must not zero out the taxable pension amount.  How do I know which is right, please.

Thank you

[DMarkM1 · Accepted solution]

Both are correct.  RI does use all income to compute the RI tax on the RI income.  However, you must still indicate what is RI sourced income and what is not so that a percentage can be calculated. 

In the RI interview you will put zero in for the RI sourced portion of "Pensions and Rents".  That will exclude from the RI sourced income part of the calculations. 

TurboTax automatically pulls the Federal Adjusted Gross income to the RI non-resident return that includes the pension income for that part of the calculation.

[hbl3973]

PVCK,

Yes, I agree with our tax expert: as I had detailed, you do not exclude pension income from your total income from all sources on your nonresident RI return and, as the expert said, you do mark that none of it is Rhode Island income.  TurboTax takes care of the former automatically when it transfers your federal information to the state return and you do the latter manually. My apologies for any confusion.