Minnesota Tax Treatment - SERP distributions

[ThomasAL]

I received a 2021 W-2 for monthly SERP distributions from a former employer (20+ years ago) located in Minnesota. These distributions will continue for life (i.e., like a pension, but reported on Form W-2). My residence has been Virginia for the past 20 years. I elected to take reduced executive salary in order to qualify for the distributions.

My view is that these distributions fall under the definition of a "deferred compensation program... with distributions [spread] over a period of ten years or more". If so, shouldn't distributions be taxed in the state of residence (i.e., Virginia) and not the state where I once worked? About 3% of the total was withheld for MN state tax. I would like to file for a refund of the full amount withheld. Is my thinking on track? How should I flag this in state TurboTax?

[BillM223 · Accepted solution]

Yes, you should be taxed in your state of current residence.

To reclaim the tax withheld for Minnesota, you will need to file a non-resident Minnesota return and show no Minnesota source income. Enter the data for your nonresident return first, then your Virginia return. 

And you should tell the former employer (or whoever is sending you these W-2s) that they need to stop withholding tax for Minnesota. If they would switch to Virginia, that would be nice, but they may not be willing to (they would have to set up an account with the Virginia Department of Revenue and send the money to them on a regular basis).