Massachusetts Tax refund amount reduced when I fill the federal form 8606 (after entering backdoor Roth Ira, $6000).

[supertech]

Massachusetts Tax refund amount reduced when I fill the federal form 8606 (after entering backdoor Roth Ira, $6000).  As expected, filling the form 8606 does not change my federal tax due. However, My MA state tax refund goes down, and it should NOT change since my contribution to backdoor Roth IRA is with the after-tax money. How do I fix this?

[hbl3973]

supertech,

First, did you make any deductible IRA contributions at any time in the past? In that case, some of the Roth conversion is taxable by the IRS.

With respect to Massachusetts, looking at the instructions for Form 1 (https://www.mass.gov/doc/2021-form-1-instructions/download) there is a worksheet that starts at the end of page 19 which may be a clue.  If lines 2 and 3 are zero, it would treat the amount converted as taxable.  I do not have the MA state add-on, but dig around and see if you can find where to enter/adjust these fields.  If you can access Form View instead of Step-By-Step, go to MA Schedule X and try to edit the second line of it.

[supertech]

I have not made any deductible IRA contributions in the past. That is not the issue. I fixed it by entering  $6000.00 in the "Total contributions previously taxed by Massachusetts". Not sure if this is the right way, but it resets my refund to the original value. Also, 2021 MA Schedule INC tells me that tax is not withheld after my update on my contribution. At least now my form looks like last year's return. Whole thing baffles me since TT did not do this in the previous years. Needs to be fixed. Good thing that I took a note of Fed and State refund/due prior to filing the form 8606. Thanks for trying to help.

[linear]

Hard to say what's going on internally, but the purpose of the "Total contributions previously taxed by Massachusetts" entry is to tell TurboTax that a distribution from an IRA is money that was previously taxed by MA (as opposed to an IRA that was funded when you did not live in MA, and so the income that funded the contribution was not taxed by the state). Hope that makes sense.