Error in Kentucky Schedule P

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I believe I found a serious error in how Turbotax calculates pension amounts exempt from state tax.  I have a government pension for which it correctly calculates the exempted (non-taxable) amount in Part 1 of Schedule P.  Part 2 of Schedule P is for other types of pensions (non-government) that are subject to the $31100 exemption ceiling.  I do not have one of these pensions, so the amount entered in Part 2 should be 0.  But instead, Turbotax has entered the amount of my government pension that is NOT exempt.  In Part 3, this amount, that should be taxed, is added back to the exempted amount, and the total, that is, my entire pension, is used as a reduction of my federal AGI in Schedule M.   This will result in a substantial underpayment of the Kentucky tax that I owe.

[BillM223 · Accepted solution]

In reading Schedule P, line 2 says, "Enter the total of taxable retirement income not included in line 1(c) above as reported on federal Form 1040 or 1040-SR, line 4(b) or 5(b). "

Note, it says, "taxable income...reported on the 1040 ... line 5b".

Wasn't your entire pension reported on line 5b? And Part I on Sch P on line 1c shows only the initial taxable part. So the rest of your pension fits the definition of "total of taxable retirement income not included in line 1(c) above as reported on federal Form 1040 or 1040-SR, line 4(b) or 5(b)", right? The forms and the instructions (such as they are) don't say that Part II is only for other types of pensions.

Or do you read this differently?

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Thanks so much for your input.  Your suggestions led me to do more research, and I finally found an example from the Kentucky Public Pensions Authority that gave an example for a state retiree.  It showed that a government pension first is reduced by the percentage of service months earned before Jan 1, 1998, and then what is left is reduced by the $31110 pension exclusion available to all retirees.  The Instructions for Schedule P and the Schedule P flowchart certainly could have stated this more explicitly.  The heading “Other Retirement Income” for Part II led me to believe that it was only for adding in additional retirement income that wasn’t eligible for a government retiree's larger exclusion, as was calculated in Part 1b.  Again, thanks for your feedback.