Question about NYS pension and annuity income exclusion

[dovestree21]

My daughter inherited an IRA from her father who died several years ago. She is younger than 59-1/2, but b/c it is a beneficiary IRA, she must take yearly RMDs. She is now a NY resident, but her father (the decedent who owned the IRA) was not a NY resident. 

Does the NYS pension and annuity income exclusion apply to her RMDs even though the original owner of the IRA (her father) was not a NY resident?

thanks for any advice!

[ErnieS0]

Yes. Your daughter can claim the subtraction because she is a NY resident.

New York treats a beneficiary pension as if received by the deceased unless it is transferred to the name of the beneficiary.

NY says: "If you receive pension and annuity income of a deceased individual, you may take this subtraction (to the extent the distributions are included in your federal adjusted gross income), regardless of your age, if the deceased would have been entitled to it had the deceased continued to live."

General Information for Senior Citizens and Retired Persons

[dovestree21]

Thanks for your reply! 

Unfortunately, the TurboTax software isn't carrying forward that exclusion onto her NYS return. I tried to enter it as follows in the State section of her return:

-Changes to Federal Income

-Wage and Retirement adjustments

-Received Retirement Income

(At that point the IRA RMD amount carried over from the federal side, and I clicked Edit, as instructed)

- In response to Did you receive this as a Beneficiary - chose Yes

-Entered the requested decedent info, including her inherited percentage share (33.33%)

At that point, a "Pension Deduction Summary" screen came up, showing the total Federal taxable distribution (about $10K), but the amount of the deduction listed in "NY Deduction for other pensions" was only $280.

If the exclusion applies, then (if I understand it correctly), she should be able to exclude 33.33% of the total $20,000 permitted exclusion, or $6,666, from her AGI. 

The agent that I spoke to did the same process - and couldn't understand it either. Finally the agent said it's because the decedent was not a NY resident - but nowhere did the software ask that (nor do I think it's a correct interpretation of the rule).

Am I doing this incorrectly? If not, any suggestions as to how to make TurboTax include that deduction?

I really appreciate your help!

[ErnieS0]

I'm getting the correct calculation in TurboTax. Are you using $0 for Exclusion Claimed on Decedent's Return?

[dovestree21]

Yes, thanks - I entered $0 for the Exclusion Claimed on Decedent's Return, but it's not applying the exclusion to the NY AGI.

Just to complicate things, I have spoken to another agent who said that the first agent's interpretation was correct: that for the beneficiary to qualify for the exclusion the decedent would have had to have been a NY resident because of the language "If you receive pension and annuity income of a deceased individual, you may take this subtraction... if the deceased would have been entitled to it had the deceased continued to live." 

This agent said that since the deceased, as a non-NY resident, would not have been entitled to that exclusion had he continued to live, then the beneficiary isn't either?? That seems like a somewhat convoluted interpretation of that language, but I don't want to take the exclusion incorrectly for her and incur penalties.

As a separate issue, as far as I can tell, there's nowhere in the TurboTax software that asks whether the decedent was/wasn't a NY resident, so the fact it's not applying the exclusion doesn't make sense to me!

Thanks for any light you can shed on this!

[LenaH]

I did a mock-up return as @ErnieS0 did and was able to get the $6,666 pension exclusion as a beneficiary. 

Per US Code § 114, no state may impose an income tax on any retirement income of an individual who is not a resident or a domiciliary of such state (as determined under the laws of such state). Therefore, if the decedent were to file a nonresident return, there would be a subtraction from federal adjusted gross income.

As stated above, as a beneficiary of a pension, the exclusion is based on the decedent’s entitlement, subject to the decedent’s age and amount limitations. However, if the recipient elects to transfer or roll it over into their own name, it now becomes subject to the recipient’s age (59½) and amount ($20,000) limitations. The beneficiary is entitled to up to a $20,000 exclusion if the decedent would have been entitled to it had the decedent continued to live, and it was not claimed on the decedent’s final return. The beneficiary does qualify for the exclusion because as per New York State, it is subject to just the decedent's age and amount limitations. It does not specify that the decedent had to be a New York resident. 

If you are still getting an error in getting the $6,666 exclusion on the return, it would be helpful to have a TurboTax ".tax2021" file that is experiencing this issue.

You can send us a “diagnostic” file that has your “numbers” but not your personal information. If you would like to do this, here are the instructions: Go to the black panel on the left side of your program and select Tax Tools. 

1. Then select Tools below Tax Tools. 
2. A window will pop up which says Tools Center.  
3. On this screen, select Share my file with Agent. 
4. You will see a message explaining what the diagnostic copy is. Click okay through this screen and then you will get a Token number. 
5. Reply to this thread with your Token number. This will allow us to open a copy of your return without seeing any personal information.  

We will then be able to see exactly what you are seeing and we can determine what exactly is going on in your return and provide you with a resolution.

@dovestree21

[dovestree21]

Thanks for this suggestion.

I have created the .tax2021 file. My token number is 976834.

The exclusion is still not showing up on the return. Is that exclusion only available in the year of the decedent's death? (In this case, the decedent died in 2017, and my daughter has taken RMDs ever since. Even though she is younger than 59-1/2, she must take RMDs since it is a beneficiary IRA. The beneficiary IRA is still in the name of her father, in the format "[Father's Name], deceased, FBO [Daughter's Name].)

I am grateful for any help you can offer!

[LenaH]

The original IRA of $750,000 is multiplied by her total share of distribution (33.33%). Then, her 2021 RMD is divided by her total distribution, which will give you a percentage of RMD taken in the year out of her total distribution. This percentage is then multiplied by $6,666 to come to a deduction of $280. 

$750,000 X 33.33% = 249,975

$10,498 / $249,975 = 4.2%

$6,666 X 4.2% = 279.97 ($280) 

If I remove the $750,000 from the value of the IRA, the pension and annuity income exclusion increases to $6,666. Since the $20,000 exclusion is annual, please remove the $750,000 estimated IRA value so the proper exclusion can flow to the return. 

Per Publication 36, if the deceased individual has more than one beneficiary, the $20,000 maximum amount of the pension and annuity exclusion must be allocated among the beneficiaries. Each beneficiary’s share of the $20,000 exclusion is determined by multiplying $20,000 by a fraction whose numerator is the value of the pensions and annuities inherited by the beneficiary, and whose denominator is the total value inherited by all beneficiaries of the deceased individual’s pensions and annuities. The total exclusion of the deceased individual and all beneficiaries cannot exceed $20,000 annually. 

@dovestree21

[dovestree21]

Many thanks for figuring out where TT came up with the $280 figure.

However, TurboTax is not allowing me to amend the state return. If I choose "amend return", and then check the boxes for both the federal and state returns (in response to "what return do you want to amend?"), it will allow me to revisit all the info I entered on the federal side, but it is not giving me access to the state return to make any changes. 

Any suggestion on how I can amend the state return and make the change you suggested (removing the $750,000 from the value of the IRA)?

Thank you!

[dovestree21]

Apologies @LenaH  - ignore my previous post - I was able to amend the state return as you suggested!

Many thanks again for your help.

(Is there a way to point this issue out to TurboTax - I see that other people have had the same or similar problems with this!)

[dovestree21]

Just by way of a follow-up to this issue - my last post was wrong.  Although the software applied part of the exclusion ($3,499) I could not get the total permitted exclusion ($6,667) to flow to the state return. I finally stopped trying to get TurboTax to correct it, and instead I manually prepared a NYS return with the exclusion (using New York's fillable forms) and filed it. I just received my refund today - instead of owing $335, which was how TurboTax calculated it, I received a refund of $276.

I now realize that I should have received this pension and annuity income exclusion during each of the last four years that I used TurboTax. It would have made a really significant difference to my NY taxes due!

This is the first year that I have paid for TurboTax (I used their FreeFile option in previous years), but I want a refund from TurboTax for what I paid for the state tax return this year, given that it was wrong in the first place (the software doesn't correctly apply the exclusion), and that when I called the support line, I was given incorrect advice (I was told that the exclusion doesn't apply by the TurboTax rep, which was contradicted by the NYS representative I spoke to later, who confirmed that the exclusion does apply). 

Any suggestions on how I can pursue that refund from TurboTax? I shouldn't have to pay for a return that was wrong and that I didn't file!

[SundayInSalem · Accepted solution]

If you're not completely satisfied with TurboTax Desktop, go to refundrequest.intuit.com within 60 days of purchase and follow the process listed to submit a refund request. You must return this product using your license code or order number and dated receipt.

[dovestree21]

Thank you for this link and info. I've submitted a refund request - will update when I get a response.

[dovestree21]

I submitted a refund request - and it was denied. This is the ludicrous response:

"TurboTax Online can be used at no cost up until the point that you submit payment. Once payment has been received, the product is considered to have been used to prepare your taxes, regardless of whether you print or electronically file your return, or if it's rejected.

Submitting payment reflects your satisfaction with TurboTax Online preparation of your taxes, and is non-refundable."

In other words - you can't ever get a refund from TurboTax. What about (as in my case) when you find out after you've paid to use TurboTax that it was wrong?? I didn't use the TurboTax version of my state return after I paid for it because the exclusion was not properly applied. I retyped the return using the NYS fillable forms, and correctly applied the exclusion - and got a refund that matched my calculations, not TurboTax's. 

[taxtirtul]

@LenaH "Per Publication 36, if the deceased individual has more than one beneficiary, the $20,000 maximum amount of the pension and annuity exclusion must be allocated among the beneficiaries."

Would this still apply if one beneficiary lives and works in New York and the other lives and works in another state?