1099-R Pennsylvania State filing Questions

[Bea99]

Hi Turbo Tax Community,

In 2020 my father passed away and I used Turbo Tax Business to file 1099-R form for the estate. I read in the Turbo Tax community that in my state of Pennsylvania no state taxes needed to be remitted for a 1099-R form for 401K distribution due to death. However, just recently I received a letter from the Pennsylvania Department of Revenue stating that I did owe tax when I filed; I owed tax liability. I read over the tax return and I ensured that all fields said no tax.

Was I correct about the 1099-R? Did I do something wrong? Were there some sort of exceptions? Did I fully misunderstand the information? I would just like to make sure I understand first and ask the community where I heard the information before I move forward.

Thank you all for your help in advance!

[BillM223]

When you say, "owed tax", are you referring to the estate tax return (which I presume generated the 1099-R) or are you referring to your personal tax return in which you entered the 1099-R?

[Bea99]

Hi BillM,

I'm referring to the estate tax return; I filed only the estate tax return using TurboTax business edition. 

[BillM223]

I see that Pennsylvania does not have an estate tax but does have an inheritance tax. 

"Inheritance tax is imposed as a percentage of the value of a decedent's estate transferred to benefi..."

The rates for Pennsylvania inheritance tax are as follows:
 

• 0 percent on transfers to a surviving spouse or to a parent from a child aged 21 or younger;
• 4.5 percent on transfers to direct descendants and lineal heirs;
• 12 percent on transfers to siblings; and
• 15 percent on transfers to other heirs, except charitable organizations, exempt institutions and government entities exempt from tax.

Of course, I do not know what you saw in Community, but I imagine that this is what the letter from the state is referring to.

[Bea99]

Hello BillM,

First, thank you so much for replying to my previous comment; I truly appreciate you taking the time out to conduct some research on my behalf.

I was totally unaware of this point that you've brought up about! So, does that mean that the information I was reading about not reporting income from a code 4 1099-R on a PA Fiduciary Income Tax Return fundamentally incorrect and that there are deep exceptions to that? I just want to ensure I'm understanding correctly for my sake and for others as well! 

Again, thank you for your time! 

[BillM223]

You say that you received a 1099-R with a code of 4, made out to your father's estate? May I assume that this was the balance of a 401(k) that was not paid out to any beneficiaries (so to the estate)?

Did you enter this 1099-R into the estate return? It is not clear to me what you did. I would presume (not having tested it recently) that TurboTax Business would correctly handle any 1099-Rs entered into an estate return.

[Bea99]

Yes, your assumption is correct. The 401k distribution was made out to the estate, not myself. Yes, I entered the return with TurboTax Business edition the exact way it was described here in the Community; I reported the exact income that the estate made and then expressed that none of that income was taxable because of code 4 distribution. 

[BillM223]

There are two different events here:

• income to the estate (the 1099-R)
• income to the beneficiaries (K-1s)

I believe that the things you read about "no state taxes needed to be remitted for a 1099-R form for 401K distribution due to death" is referring to the recipient being an individual, as opposed to an estate. This may not be true if the recipient is an estate.

I believe that the estate views this distribution as just income, a transfer of an asset from the decedent to the estate. This is why the estate may have to pay tax on the transfer whereas you might not have to pay any tax had the 1099-R gone directly to you.

But there are other issues, like PA 401(k)s being different than most, because the taxpayers might not have been able to deduct contributions to the 401(k), so that when the distributions are made back to the taxpayers after the plan's retirement age, the distributions are not taxable.

The TurboTax software is usually correct, so long as you answered all the questions correctly. Perhaps you should return to the business software and go through the interview again and see if any question jumps out at you.

[Bea99]

Hi BillM, 

Your suggestion of returning to the interview is a great idea; however, unfortunately for me, I no longer have the computer I used to file the return and that old edition of TurboTax isn't available anymore. 

I truly appreciate all of the help you've given me!