Possible mistake in TurboTax regarding Oregon foreign income subtraction

[pillarsoftheearth]

On my federal return, I'm claiming a $38 foreign tax credit (Form 1040 Line 20).

Oregon publication OR-17 (2023 edition) states the following about subtracting foreign income tax: "Your foreign tax subtraction plus the subtraction for your current federal tax liability plus any additional federal tax paid for a prior year can’t be more than $7,800 ($3,900 if your filing status is married filing separately)."

My subtraction for my current federal tax liability is $0, so this would not appear to be an issue. However, when I input the $38 into TurboTax, it doesn't apply the subtraction to my state return.

Looking more closely at it, it appears that TurboTax is using an outdated rule for determining if the subtraction can be applied. In TY 2019, the guidance in OR-17 was different, stating, "Your foreign tax subtraction plus the subtraction for your current federal tax liability plus any additional federal tax paid for a prior year can’t be more than the 2019 maximum federal tax liability subtraction amount for your filing status shown in Table 7, above." If I applied this logic to my case in 2023, the maximum federal tax liability amount would be $0 (and I therefore couldn't subtract the $38 in foreign tax). This language was changed in 2020 and all subsequent years, however TurboTax still is using the outdated rule, as evidenced by comparing the TurboTax smart worksheet (first image) with the worksheet in the 2023 version of OR-17 (second image):

Line 1 in TurboTax says to enter the maximum amount from an earlier table (which for me is $0); Line 1 in the OR-17 worksheet says to enter $7,800.

TurboTax folks, unless I'm somehow mistaken about this, please fix this issue.

As an aside, another post that appears to be related shows up in search results, but I'm blocked from accessing the contents of it. Link here: https://ttlc.intuit.com/questions/5844571-error-in-tubotax-or-state-if-your-fed-income-tax-subtracti...

[DaveF1006]

It depends. I checked this in my mock return and it seem to calculate correctly. Currently I see no issue to be fixed. In this scenario, the foreign tax paid is being applied correctly and reduces the taxable income by $38.

[LizaJane]

@pillarsoftheearth @DaveF1006 , I had this same issue with TT not allowing an Oregon deduction for foreign income tax paid. In my case I figured out from the 2023 Pub OR-17 (pages 72 and 74) that this deduction is phased out based my income being too high. With Federal AGI > $145k the maximum allowed deduction for foreign tax phases down to zero. Maybe this solves your mystery, too? 

[pillarsoftheearth]

@LizaJane - Thanks for the reply, but I don't think that's correct. The deduction that's phased out above $145k of income is the federal tax liability subtraction, not the foreign tax subtraction. See the title of Table 9 on page 74 of OR-17:

In Part C of the worksheet (which deals with the foreign income tax subtraction), it makes no reference to Table 9, or any income-related phase-out. The only thing that it calls out as disqualifying someone from subtracting foreign tax is if their total federal tax subtraction is $7,800. However, if you make over $145k, your federal tax subtraction has to be $0, so this doesn't apply.

@DaveF1006 - thanks for clarifying that the default value of Part C, Line 1 can be overridden. However, the issue still remains that the TurboTax worksheet's language is incorrect/doesn't reflect the language in OR-17.

TurboTax Part C Line 1 states "Enter maximum amount from table", which for me would be $0 (assuming the "table" in question is Table 9, shown above) since I make >$145k.

OR-17 Part C Line 1, by contrast, states "Enter $7,800 ($3,900 if your filing status is married filing separately)." - see image below. Please have TurboTax fix the language so that it mirrors what is in OR-17 Part C Line 1.

[MollyShaw613]

Has this issue been resolved? The calculation still seems to be incorrect for tax year 2024. The starting point should be $8,250 for the foreign tax calc but it's phasing out based on the AGI table. 

[DaveF1006]

It depends. According to ORS 316.690, the subtraction cannot exceed $3000, so the credit is limited based on this code section  of The Oregon Revised Statutes.

@MollyShaw613 

[MollyShaw613]

The subtraction amount in this instance is for $180 so it would not exceed that threshold. 

[wsepnp]

I also see the same issue on my Oregon state return.
"The calculation still seems to be incorrect for tax year 2024. The starting point should be $8,250 for the foreign tax calc but it's phasing out based on the AGI table. ".

And it doesnot allow me to override the value in Line 1, part C of Foreign Tax subtraction smart worksheet.

Please help.

[DaveF1006]

Yes, here is a method to enter this information as you prepare your Oregon State Tax return.  

1. Select the State Tax Tab in your return.
2. Navigate to the section that says Here is the income Oregon Handles Differently
3. Go to the section titled other subtractions
4. Next you will see a list of subtractions.  Foreign Income Tax is listed in the list of choices.
5. Press yes and make an entry for foreign income taxes.
6. Now look at Oregon other subtractions worksheet, there should now be a value in line 4 of the smart subtractions worksheet.

I tested our software and the calculation was there.  See if this works for you by following the steps i just listed.

@wsepnp 

@MollyShaw613

[taxeycab]

The problem is not with entering the Foreign Income Tax. As expected, the Foreign Income Tax appears in "Oregon other subtractions worksheet" Part C, Line 4.

The problem is with "Oregon other subtractions worksheet" Part C, Line 1. TurboTax is incorrectly using the phase-out Federal tax liability subtraction value, instead of the correct value, $8,250. See [1] for reference.

How do I change "Oregon other subtractions worksheet" Part C, Line 1 to the correct value?

[1] 2024 Oregon Publication OR-17 Individual Income Tax Guide, Foreign income tax (ORS 316.690)

[DaveF1006]

To look at this in detail and to report a possible product defect, we would like to see a diagnostic copy of your return. The information in this file is a sanitized copy meaning there is no personal information, only numbers so that we can troubleshoot in depth, check for calculation issues, and to see how certain items are applied. Here is how to order. 

For Turbo Tax online, go to tax tools>tools>share my file with agent.  When this is selected, you will receive a token number.  Respond back in this thread and tell us what that token number is. 

If you use the desktop version, go to the black stripe at the top of the program, click on online, and then select send tax file to agent. Let us know what the token number is.

In looking at my Oregon state form, $8250 is showing up correctly in part C line 1 and the federal tax liability subtraction is showing up correctly in Line 2. We just need to determine why yours is different.

[taxeycab]

I suspect yours is showing up as $8250 because you have entered a Federal Adjusted Gross Income (AGI) less than $125,000 for single filers, or $250,000 for married filing jointly. See 2024 Oregon Publication OR-17 Individual Income Tax Guide, Table 9 "Federal tax liability subtraction AGI phase-out".

Can you please try with an AGI greater than $125,000 for single filers, or greater than $250,000 for married filing jointly? I expect you will then observe the defect.

[DaveF1006]

I did what you suggested.  I used $150,000 as an AGI amount. According to table 9, the maximum amount of tax liability is zero and Turbo Tax reported this correctly.  I changed the number to $135,000 and $3300 shows up correctly as the maximum amount of tax liability. 

The program does appear to handle this correctly unless there is something i am overlooking.

Oregon Publication 17

[taxeycab]

The problem is not the federal income tax liability subtraction calculation. That is correct.

The problem is with "Oregon other subtractions worksheet" Part C, Line 1. TurboTax is incorrectly using the phase-out Federal tax liability subtraction value, instead of the correct value, $8,250. See [1] for reference.

How do I change "Oregon other subtractions worksheet" Part C, Line 1 to the correct value?

[1] 2024 Oregon Publication OR-17 Individual Income Tax Guide, Foreign income tax (ORS 316.690)

[DaveF1006]

The phase-out of $8250 is only true if the AGI amounts are less than $125,000 for single tax payers or $150,000 for MFJ. If the amounts are over these thresholds, then the amounts reported part C line 1 reflect the values that are listed in Table 9 of Oregon Pub 17.  Turbo Tax is reporting this correctly.