New Jersey Pension Exclusion

[KenL2]

New Jersey does not tax pension distributions until distribution exceeds the amount contributed after tax.  Federal Taxable Income does not consider employees contributions to public pensions as taxable income.  New Jersey does consider employees contributions to public pensions as taxable income.  Consequently, pension distributions are subject to Federal tax, but only the distribution in excess of the employees contribution is subject to NJ income tax.

I have not found  way to address this in Tubotax Deluxe 2019.  This is the first year my wife  has received a distribution from NJ Pension and Benefits.

Thanks for any help!

[TomD8]

Be sure to enter your wife's 1099-R correctly in the federal side of Turbotax, particularly the code in Box 7.  The information will flow through to your NJ return and the program will calculate the NJ pension exclusion.

The 1099-R is entered in the Retirement Plans and Social Security section of Personal Income.

[KenL2]

TomD8 - thank you for reply.

Box 7 shows distribution code 7-Normal Distribution.  I think the only way Turbotax could calculate the exclusion is if it asked me to enter my wife's after tax contributions to pension.  

[TomD8]

I suspect - but I don't know for certain -  that your wife's 1099-R from the NJ Pension Plan already takes her post-tax contributions into account, and that the amounts in Boxes 1 and 2a are correct.

You could contact the NJ Division of Taxation at  (609) 292-6400 to see if this is correct.

https://www.nj.gov/treasury/pensions/documents/factsheets/fact12.pdf

[KenL2]

TomD8 - Thank you for your response.

Unfortunately we know  her total contribution over the years and the amount she has received to date, which is correct on the 1099R, is not even close to her contributions. 

[fanfare]

The issue sounds similar to an inherited IRA on which the NJ Transfer Inheritance Tax has been paid.

You must enter the excluded amount on line 20b rather than on Line 20a, based on your own records, which you should keep at hand in case of audit.

You should be able to do this without using an override if you use the desktop software.

[fanfare]

First, refer to 2019 Form NJ-1040 Instructions for Line 20b for pensions. You are electing the Three-Year Rule Method.

[fanfare]

Did you go through the Interview for the 1099-R?

Turbotax lets you specify the taxable amount, namely,  zero

[KenL2]

  Thank you for your response.

Unfortunately that will also show up on the Federal return.   When working, the contribution was exempt from federal tax, but taxed by New Jersey.  We do owe Federal tax on the pension distribution, but not state tax, as I would be paying taxes twice on the amount. 

[fanfare]

workaround (not pretty):

Print your NJ state return with the zero taxable amount.

File on paper via US Mail.

correct the taxable amount and delete NJ Return.

e-File your Federal tax return.

[fanfare]

assuming you are not reporting any IRA distributions ,
you can do it this way
-
treat the 1099-R as an IRA
box 1,2a your pension amount
check total distribution
check the IRA box and code 2 in box 7
-
in the NJ form "Pensions Wks-SP"
set Line 4a = pension amount and 1a = zero.
you should see the pension amount on Line 8.
and on NJ 20b
-
The amount will be taxable on federal Form 1040.

--

If you have an IRA unrecovered contributions history you'll have to save the numbers on paper or a spreadsheet to be restored later.

[KenL2]

fanfare- thank you.

Was thinking same workaround, but need to read over NJ Tax Guidelines this weekend as there are two lines on that form- 20b and 28a, labelled "Pension Exclusion".  

[fanfare]

You qualify for the pension exclusion if:

• You (and/or your spouse/civil union partner, if filing jointly) were 62 or older or disabled as defined by Social Security guidelines on the last day of the tax year (December 31 for calendar year filers); and
• Your total income for the entire year was $100,000 or less.

The Retirement Income Exclusion may eliminate part of or all your tax, It applies to IRA or pension income.

Since TurboTax did not populate that line you must be not eligible.