CA Form 593 withholding issued to my trust

[usatax]

My mom passed away years ago and I inherited land that was held in her trust. In 2020 I sold the land. The escrow issued a 1099-S and withheld 3.333% shown on form 593 - all using the trust's name and EIN number.

I am using the business software to prepare a trust return (1041 & CA 541). I'm reporting the capital gain on the property and passing the gain through to my personal return using the K-1. The trust itself will have no income, but will just be reporting the sale .

But I'm confused about the withholding on form 593? Do I just claim a refund of this amount on the 541? Or does this withholding somehow get passed through to me personally as some kind of credit on the K-1?

[Anonymous_]

The amount you are seeing is generally pass-through withholding (to ensure nonresidents file a state tax return).

In order to receive a refund, however, the nonresident beneficiaries must typically file a nonresident state individual income tax return.

[usatax]

Thank you for the response.

However, "non-resident" issues are not the issue here. The taxpayer, trust, and real estate sold are all in California. Nothing is out of state.

The issue is that the real estate was sold by a irrevocable trust, as a separate entity from the taxpayer. The trust has its own name and TIN - different from the taxpayer. The trust's EIN are on the 1099-S and the 593 form.

I believe a 1041 / 541 trust return needs to be prepared. I'd like to pass the long term capital gain over to the taxpayer (me) via a K-1.

But how to handle the CA 3.333% withholding is my question. I assume this needs to be reported on the trust's CA form 541. The trust will have zero tax liability since the capital gain will be passed through, so do I simply claim the withholding as a refund on the 541? (I was easily able to create a return this way.)

Or is there some kind of way to "pass-through" the withholding as a credit to the taxpayer (me) on the K-1? (If so, I have no clue on the *specifics* on how to enter/report this.)

Thank you.

[Anonymous_]

You should contact phone support for specific information on CA withholding and forms in TurboTax.

What is the TurboTax phone number? (intuit.com)

Generally, though, any state tax paid (withheld) would be considered a deduction for the trust if paid by the trust. Obviously, that would be entered on your federal Form 1041. 

If a state refund (or tax) is due, that matter would be handled exclusively on the state return.

[Aspirin756]

I have essentially the same issue filing a 2023 California 541 for a trust in which I need to correctly handle the payment made with California Form 593 on a real estate sale.   TurboTax has a mechanism to handle Form 593 withholding but at least for today (WinBizRelease version 023x000x0241 [the x's are to avoid it being mistaken for a phone number and deleted]) it is not working in TurboTax for Business.

The problem is that without intervention, TT will treat your withheld tax as a deduction (Form 541 line 11), not a tax payment (Form 541 line 31).

In the California interview section "Other Tax Withholdings", on the first page "Tax Withholding for 2023", answer "yes" to the question "Do you have any California income tax withheld for 2023?"  The next page offers you two boxes. One for income tax withholding and the other for "Real Estate or Resident/Nonresident" withholding.  Enter the 593 withheld amount here.  This amount flows to the Tax Payments Worksheet, Part II, line 2.

The Tax Payments Worksheet has a checkbox to "Transfer withholding from Forms 592-B or 593" that does not seem to appear in the interview.  But checking the box manually on the form will result in an error, "CY 592-B Wks/593 Ck Box should not be checked unless there is a completed corresponding Resident and Nonresident Withholding Tax State or Real Estate Withholding Statement".  I tried to add a copy of Form 593 but it is not available in this release to add, only various versions of the Form 592 Resident or Nonresident Withholding.

I can force Form 541 to be more correct be editing it: (1) subtract the 593 payment from line 11.  This will make it zero if you have no other tax payment deductions.  Then (2) add it manually to line 31.  Now TT will correctly calculate your tax and refund. However it will also leave you with an error for line 31 because there is no Form 593, and thus makes the return ineligible for electronic filing.

I'll file a bug report if I can figure out how.