Maryland Annualized Income method

[andrewtoml]

I want to annualize my income for my Maryland return. The Turbotax (Desktop, MacOS) screen for State Taxes>Annualization Method instructs me that "Your total Maryland taxable income for 2022 is [Amount A]. Enter your Maryland =Taxable income from January 1, 2022 through each of the dates below."

There is an entry box for the first three quarters, and the fourth entry box (01/01/2022-12/31/2022) shows a pre-filled [Amount B]. Amount A differs from Amount B by almost $9,000. Amount B appears to be incorrect. When I look at my Tax Summary (via the Tax Summary button), it shows:

Amount B=the amount of my Maryland Adjusted Gross Income, and 

Amount A=the amount of my Taxable Net Income.

I do not want to enter correct amounts for Q1-Q3 when Turbotax will automatically calculate the Q4 amount to equal an erroneous Adjusted Gross Income (Amount B) for the annual total.

I have Checked for Updates and have all the latest.

This looks like a Turbotax error; how do I resolve it?

Thank you,

Andrew

[MonikaK1]

The descriptions for the entry boxes you described match those that appear on the State of Maryland Form 504UP.

In order for us to troubleshoot 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 for TurboTax Desktop users: 

1. Go to the Online tab at the top of the TurboTax desktop screen
2. Click on Sent Tax File to Agent
3. Reply to this thread with the Token number that will appear. 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 is going on in your return and recommend a resolution.

[andrewtoml]

There is no "Online" tab, but I found "Send tax file to Turbotax agent" under the "Help" menu. 

1092827

Thank you.

[MonikaK1 · Accepted solution]

Thank you, I have analyzed the diagnostic file.

The Adjusted Gross Income from Line 16 of your MD Form 502 is the amount that Maryland uses for Line 1 of Form 502UP to compute underpayment interest. See here for Maryland Form 502UP.

The entry screen that you referenced does also show the amount of your total Maryland taxable income. Then, underneath the entry fields for the first three quarters, it shows the total for all four quarters as the Adjusted Gross Income. The Adjusted Gross Income (which you identified as Amount B) is the correct figure to use for the total. 

The difference between your AGI and your Taxable income is the amount of your state exemptions and standard/itemized deductions.

If you are going to enter the amounts of income that you received in each of the first three quarters in order to annualize your income for purposes of calculating whether any underpayment interest is due, it makes sense to use the AGI rather than the Taxable Income as the total for all four quarters.

The Data Source for Form 502UP, Line 11, in TurboTax is shown as follows:

Column 1:
Calculated as line 1 multiplied by .250; or enterable if annualized box is checked.

Column 2:
Calculated as line 1 multiplied by .500; or enterable if annualized box is checked.

Column 3:
Calculated as line 1 multiplied by .750; or enterable if annualized box is checked.

Column 4:
Calculated as line 1 multiplied by 1.

I have reported the issue with the confusing taxable income reference showing on the screen where you input the first three quarters' income to add up to the Adjusted Gross Income.

[andrewtoml]

Thank you for your help and explanation.

[DRobert]

I have the same issue with the Maryland 502UP. The form auto populates Line 11 4th Period with the same value as Line 1. This is an error according to the instructions for the form, "Enter in each column the income received for the period of the year covered by that column." The form should allow me to enter my values the same as it does for 1st, 2nd, and 3rd Period columns. I understand the point that the number entered on Form 502UP Line 1 is computed on the Maryland Resident Form 502 Line 16, and includes "Subtractions from Maryland Income",  but there is nothing in the 502UP instructions which says the two values must be the same. The instructions only state that 4th Period income must be, "...100% of your income...". 

When will this problem be resolved to allow me to enter my own values on Form 502UP Line 11 4th Period?!

[AmyC]

Never. The 502 UP, line 1 is total MD income. The line 11 instructions state to divide total MD income on line 1 into earnings per period. Line 1 must equal the 4th period of line 11. See the actual form and instructions for line 11, 502UP.

@DRobert 

[DRobert]

What you show are the instructions on the front of the form, which is how TurboTax computes Underpayment of Estimated Income Tax. This method causes TurboTax to push the need for an interest payment for underpayment of estimated tax to my return. If you go to the instructions for the form, on page 2, you are told to enter the actual income received for the period of the year covered by the column. If your income was received evenly throughout the year, you can do what you said, divide Total Income by 4, and you will end up with the total from line 1 in the 4th Period column, and in my case a penalty for underpayment of tax. If I enter my actual income, and Maryland Tax withheld per quarter, I have no penalty and the total in the 4th Period column is the total of the four Period columns. This is the correct method for someone in my situation, and probably many others. Your method causes an unnecessary penalty. There are no requirements that I can find in the instructions that say the two values are to be the same. The 4th Period value does not have the Maryland Exclusions in it, and without changing the form substantially this could not easily be done. All that needs to be changed is to remove the block on the 4th Period value to allow manual entry, just as is done for the 1st, 2nd, and 3d Period columns, and the form would then be filled in correctly for those of us in this unusual situation. This is how I see it from reading the instructions. My intention is to allow TurboTax to complete the Maryland Tax Form 502UP using my values in the first 3 columns, print the pages required for mailing the return, discard the TurboTax Form 502UP, complete a new 502UP with my values, and mail it with the remainder of the TurboTax forms instead of e-Filing the Maryland return. And also, save the ridiculously high $25 e-File fee, and be sure to switch to another tax preparation software for the next tax year, because this has been a miserable experience!!

[AmyC]

I think I see the disconnect and possibly a problem with your return. You are correct that the exclusions should be already accounted for when determining any additional amounts due.

Let's start with the disconnect:

I didn't say to divide by 4, I simply said to divide the earnings by period, not by the number of periods. You are right that is a big difference. The instructions for Line 11 includes: You may elect to report your income based on the actual dates of receipt. If so, enter income received between January 1 and March 31 in the first column; enter income received between January 1 and May 31 in the second column; enter income received between January 1 and August 31 in the third column and 100% of your income in the fourth column. 

Let's try an example for someone with $100,000 income for the year.

• Of that $60,000 was earned in the last 3 months of the year.
• $5,000 in the first 3 months
• The last column is your total income, always from line 16 of 502.

The form would be filled in as such:

• Q1 earned $5,000 so we enter $5,000
• Q2 earned $8,000 so we enter $8 + $5 = $13,000
• Q3 earned $27,000 so we enter $27 + $13 = $40,000
• Q4 earned $60,000 so the program will enter total income of $100,000 (40k + 60k)

Because this income was earned primarily in the final quarter, the taxes would be much lower than if they were spread throughout the year.

Possibly a problem:

Let's double check the income and exclusions you mention.

The annualization form says on line 1 to use line 16 of Form 502.

Let's look at Form 502. Line 16 comes after all the additions, subtractions, and exclusions are accounted for so that only your final income is left.

You are stating that your column 4 is not accounting for the exclusions just above line 16 on the 502. Please review your return and answer questions to get the exclusion entered. Once your exclusions are properly showing on the 502, the program will be able to correctly enter your income.