ezfile

[tjh6060]

I'm just about to finish e-filing and I've a got message that doesn't make about State tax withholding on my 1099R. It states that my withhold is greater than the distribution

[SteamTrain]

Yep......The vast majority of 1099-R forms leave box 16 empty....but many states require a value for the "State Distribution Amount" anyhow  (when entered, that will backfill into box 16 of the 1099-R worksheet)

That needs to be entered by the user, almost always, as being the same as the value of box 2a ...or the Federally-taxable amount of box 1 if box 2a is empty or marked as "undetermined".

[macuser_22]

It should be the same as the Federal *distribution*, box 1, not box 2a which is the taxable amount.

[SteamTrain]

While whether 1 or 2a is used "might" be dependent on what state is involved as to which value needs to be used for the state distribution amount...I suspect it is 2a for most of them.....but one would need the software developers to closely examine each and every state software set to see how they actually use that number

In my own state (NC) it is 2a.   When entering my 401k 1099-R, as issued , it has after tax contributions (box 5), that reduce box 1 to produce a lower 2a...... When that 1099-R is entered as-is,  the tax software automatically uses the box 2a value as the State Distribution Amount when I get to the page that asks for the value...then the software backfills box 16 (box 14 in prior years) with that 2a value....with no intervention on my part.  (yeah, if 2a is blank, then that has to be determined)

In some cases for NC  (and probably other states software too) , certain Federal or NC State pensions can be fully deducted from NC income, the so-called Bailey Settlement.  BUT only to the extent that the income was included in Federal AGI in the first place.

.....in earlier software years (say 2013), for this so-called NC "Bailey" eligible Pension with, say box 1=20,000 and box 2a validly at 15,000 due to 5,000 of after-tax contributions...the software would put  box 2a value of 15,000 automatically as the state distribution amount on the follow-up page.  IF one replaces that with the box 1 value of 20,000, then the software  proceeds to improperly subtract the full 20,000 from the starting Federal AGI ....when only 15,000 was in the federal AGI in the first place.  Thus producing an NC income 5,000 lower than it should be.

I've noted that the software developers have appeared to reprogram the software now to properly limit this in the past several year's NC software to the acceptable 15,000 reduction in state income, even if one re-enters the full 20,000 to replace the 15,000 it expected to use......but the implication remains that the value of 2a is the software-intended value for the state distribution amount....at least for NC.

Other states ???  Can't speak for how afar along they are in delineating that difference.

A state that allows a full deduction of any retirement income from Federal AGI when boxes 1 and 2a are different, and only box 2a is included in Federal AGI???   Are those states properly programmed to use the 2a value automatically, or blindly use whatever is in the "State Distribution Amount".

IF a state allows a 20,000 reduction in retirement income, and they only have one 1099-R with box 1 at 20,000 and 2a is validly 10,000  (I've been close at one time), will putting 20,000 in the State Distribution Amount subtract a full 20k form Federal AGI when 2a=10k subtraction is proper ? 

Yeah, I can't speak to how all the other states are being programmed, and if the are being consistently used in a similar way for boxes 1 and 2a. 

[macuser_22]

Distribution and taxable amount are not the same.

The only reason for box 16 at all is if there are two states and part of the total box 1 distribution must be allocated to each state.    In the case of only one state then the state distribution and Federal distribution are the same amount.   That is why financial institutions generally leave box 16 blank,   The distribution is the amount that you receive and that is  the box 1 amount.

In reality it is a difference without a distinction in most cases but a taxpayer can elect to have any percentage of state tax withheld.  It is entirely possible to have more state withholding then the box 2a amount and that will cause a processing error since the state tax cannot exceed the state distribution but it can exceed box the 2a amount.

[SteamTrain]

Yeah, the issue of persons moving between states can be a problem especially as it relates to box 1 and 2a when they are different....and I suspect it would have to be resolved in the state part-year tax returns Q&As and income allocation sections.

As for the withholding possibly being higher than 2a, I would guess it could be remotely possible.  But when I ask for a specific % withholding from my 401k every year, they (Fidelity) always uses the 2a value as the starting point for the calculation, so greater than 2a wouldn't be possible (or could I ask for 105% since box 1 is higher?  Or would they refuse? )

I would still worry far more about how the various different state's software treats the State Distribution Amount entry when the sate allows all, or a specific amount, to be subtracted from Federal AGI ....when box 1 and 2a differ, that state deduction can never be greater than the $$ included in Federal income....and that's how the NC software has historically used that Distribution Amount entry.

[macuser_22]

AFAIK only the NY (and I think one other state but I don't remember which) cares if box 16 is blank (and a blank box 16 assumes the box 1 amount).

"...that state deduction can never be greater than the $$ included in Federal income...."

That amount is not based on box 16.   What is included in Federal income is what in on the 1040 line 4b or 5b.

[SteamTrain]

Oh, I certainly agree that  the State Distribution amount that ends up in 16,  should logically be the same as box 1  (even if empty on the actual 1099-R).   But that is not how the software has historically used that "State Distribution" number for many years. My Federal software (with NC attached) has always used the  2a value, and required that it be the 2a value for many years.  Certainly  2013 & before, the software required that it had to be the box 2a value (I re-checked 2013 with a test file yesterday) ....but I haven't re-checked all of the more recent years.....and my 2020 software still automatically transfers the 2a value into the State Distribution Amount field on the follow-up page when it is lower than box 1, so they (software developers) don't appear to have re-interpreted that somewhat "off" interpretation.  For me, it's always been more a matter of how that distribution value will be used by the software.