403(b) disbursement taxes

[bunbury]

In 2016, I took a partial disbursement from my 403(b) account.  According to TurboTax, I owe both NY state (where I work) and NJ (where I live) tax. Is this correct?  I was over 59 1/2 so no penalty, and I repeated this in 2017 and 2018.

[AmyC]

Yes, NY now taxes lump sum distributions that are NY sourced. So your distribution is taxable to NY and then NJ will tax you and give you a credit for the double taxation.

Your resident state taxes all income but gives a credit for income taxed by another state.  Please carefully follow these directions.

You will need to prepare the states in a special order. You may need to delete both states and begin again.

1. First, prepare your non-resident  return. This creates your tax liability for the non-resident state. How do I file a nonresident state return?
2. THEN prepare your resident state return and it will generate a credit for your income already being taxed in the non-resident state.
3. The credit will be the lower of the state tax liabilities on the same income. You may owe your resident state.

It isn't possible for the program to create a credit before it knows the liability. Your returns may be wrong if you do not prepare the states in this order.

[bunbury]

Thanks. I knew there was reciprocity between NJ and NY, but wasn't seeing it on the disbursement tax. Will re-do in the order you say.   -

Rob

[AmyC]

It can be so frustrating. Glad I could help!