PA 1099-R distribution code 7D

[neilmoses]

There appears to be an error in Turbotax carrying over 1099-R income to the PA state return.  While most 1099-R income in PA is not taxable, there are situations where the income is taxable. My understanding is that if the distribution code on the 1099-R form is 7D, it means that the income is taxable in PA.  I even had one 1099-R form that specifically shows the amount of the distribution that is taxable in PA (Box 16 on 1099-R form), yet this amount does not transfer over as taxable income on my PA filing.  This situation also occurred in my 2021 filing which resulted in my owing back taxes in PA along with a penalty and interest.  Is Turbotax aware of this issue and is something being done to correct it?

[DanaB27]

Yes, distributions with code D7 are taxable income in PA and are reported as interest income on PA Schedule A. Please review your selection on the “What kind of retirement income do you have from Pennsylvania?” screen during the state interview.

"For tax years beginning on or after January 1, 2005, any amounts reported in gross income for Federal Income Tax purposes for a retirement annuity that is not an employer sponsored retirement annuity (reported as Codes 1D, 2D, 3D, 4D or 7D in Box 7 beginning with 2013 Forms 1099-R) are reported as interest income on PA Schedule A regardless of whether the annuity payments began before January 1, 2005, or on or after January 1, 2005." (PA DOR)

[neilmoses]

Thanks for your response.  When I entered the 1099-R information during the Federal review, I indicated that the distribution code was 7D.  So why isn't Turbotax automatically entering this as taxable income into my PA filing?  This seems to be an error in the Turbotax software.

[neilmoses]

In your response you indicated that if Box 7 on my 1099-R has Code 7D, then that income is taxable in the state of Pennsylvania. I agree with that.  What I don't understand is why Turbotax doesn't automatically add that income to my PA filing.  This same issue happened last year, and I ended up having to pay back taxes plus interest and penalties.  This is an error in the Turbotax software that needs to be fixed!

[DianeW777]

It depends. With code D and code 7 entered in the federal return when entering the Form 1099-R, when you begin to review your Pennsylvania (PA) return you are asked questions. TurboTax will ask you to verify this income because of the several various instances for PA to determine whether a 1099-R is taxable or nontaxable.

First you are asked 'What kind of retirement income do you have from PA?' Here you must select from the drop down 'Non-qualified deferred comp plan'. On the next screen you will see the PA taxable income for this distribution. See the image below.

@neilmoses 

[neilmoses]

This is not working correctly!!! do you not understand??? Is Turbotax intesested in fixing this error??? I am about to switch to another tax preperation software unless someone at Turbotax is interested in fixing this problem.  

[ErnieS0]

Verify that the box “Not subject to Pennsylvania Tax” is NOT CHECKED on the PA Gross Compensation worksheet.

TurboTax will ask you to "Check This Entry" on State Review. Uncheck the box to make your Form 1099-R taxable to PA.