Maryland Pension Exclusion

[billjh]

I have a Maryland state pension. The full amount is excluded as a subtraction (code R) because of the state pick up rule regarding contributions to the pension. However, Turbo Tax is also including the same amount as part of the pension exclusion which results in a duplicate deduction. How can I get Turbo Tax to override or adjust the pension exclusion to eliminate the incorrect duplicate deduction?

[ThomasM125]

In the entry for your form 1099-R, where it says "State Information" it states in TurboTax "boxes 12-14 if box 14 has the word "Exempt" in it, leave it blank here." So, if may be that you entered the state distribution in box 14 of your form 1099-R entry incorrectly. Please try leaving that box blank if you haven't already done so.

[billjh]

Thank you for the tip but it did not solve the problem. The 1099-R had a zero in box 14. The total State Pick Up contributions were listed in box 17. Turbo Tax processed the subtraction perfectly. It created a subtraction (Code R) to exclude the full pension amount using the appropriate amount of contributions. The balance of contributions is carried over to next year. Maryland handles this like the old 3 year rule for federal pensions. However, there was then a disconnect when Turbo Tax also included the pension amount in the pension exclusion worksheet in effect excluding it twice. I'm sure the Maryland tax folks would not approve! It appears to me to be a software glitch. I have sent a comment to Turbo Tax support. Hopefully they can fix it or tell me what I'm doing incorrectly. 

[BillM223]

The problem is with your W-2. The Maryland Comptroller says that the state pickup is supposed to be entered in box 14, not box 17. In fact, there is a specific category in box 14 for the pickup.

Please talk to your employer and have them read this statement from the Maryland Comptroller, and ask for a corrected W-2.

[billjh]

Thank you for your reply. You are correct in how the State Pick Up contribution is handled on an employee's W-2. However, this is a regular pension payment to a retiree reported on a 1099-R. Thank you for the W-2 handout! I had not seen this before.

[BillM223]

My apologies for not seeing that it was a 1099-R. Questions about the state pickup amount are normally asked about W-2s, so I just assumed...and you know what that means.

I am struggling to understand why there is an entry in box 17 on your 1099-R. Yes, the pension amount is included in federal income but not state income (since the pickup contribution was already subject to tax).

OK, I have found where TurboTax asks for this. Hmmmn, it's going to take me a bit to set up a test for this. In the meantime, you might go to the Maryland interview and look for the screen with the title "Taxable Pension May Need to be Adjusted". Try putting in the amount of the pension (Box 1 on the 1099-R) less box 17 (the pickup contributions).

If I am right, this will remove the pickup from being considered for the big pension exclusion while at the same time still letting it appear as the R subtraction.

Let me know.

[billjh]

Thank you again. I could not find a screen titled exactly "Taxable Pension May Need to be Adjusted." However, I went through the interview several times changing numbers but not getting a correct result. I was able to eliminate both the subtraction and the pension exclusion one time which is not a good result! All the entries on the 1099-R are correct and I have to use these entries.  Turbo Tax recognizes the correct taxability of the pension in light of the contributions. For some reason it is not properly eliminating it from the pension exclusion computation. It still appears to me to be a software error. I think the best fix is to allow the user to edit the pension exclusion worksheet instead of just allowing the automatic calculation. I have sent a couple of comments to Turbo Tax without any response. My only solution may be to override the exclusion calculation and file a paper return. Thank you again for your assistance. Your help has motivated me to see if I can help someone else by answering questions!

[BillM223]

Can you do me a favor and tell me the entries on your 1099-R? I have the Maryland CD/download program, but I am having trouble setting up your test case, and I assume it's because I've never seen a 1099-R with a pickup on it...

[billjh]

These numbers are comparable:

Box 1 is 16,750

Box 2a is 16,750

Box 2b is blank. No boxes checked.

Box 7 is code 7. IRA box is not checked.

Box 14 is 0

Box 17 Is listed as "Pick-Up Contrib's." The amount is 65,789. Normally Box 17 would be marked Local distribution and that's how it is marked in the Turbo Tax 1099-R data entry screen. However, when you pick the source as code P it is processed correctly.

Good luck and thank you.

[billjh]

New problem. Turbo Tax has now suddenly taken away my Maryland two earner deduction. It looks like it is related to this same pension issue. My wife and I each have income to qualify for the deduction and had it all along. Now it asked me for the first time to allocate the Maryland pension income in question between me and my wife. As soon as I correctly allocated it all to my wife, Turbo Tax declared (in red) that we did not qualify for the two earner deduction any more which is 100% wrong.  I cannot fix it. For the first time I was reviewing the H&R Block tax software website as a possible alternative. I think there is a software problem here that I hope someone from Turbo Tax will address. Thank you.

[BillM223]

If you can, please look at the Two Inc Sub Wks (Two Income Subtraction Worksheet).

If you are using the CD/download software, you can see this by going to Forms.

If you are using the Online software, you can see it once you pay.

I am hoping you can see it and report back on what it says about either your income or your spouse's.

I see in TurboTax a message that appears when you enter the screen about Two Income Couples in the Maryland interview. The message says that if you change allocations after this point (which you did when you allocated all the pension to your spouse) that you need to go back to this Two Income screen to check and possibly update the allocations again.

Did you see that? I am thinking that it is possible that TurboTax does the Two Income Couple Subtraction only once as you pass through the interview, and you need to pass through the interview again when you make any changes.

[billjh · Accepted solution]

Good news! I was able to fix the pension exclusion problem and the related two earner subtraction problem. The two earner subtraction was not being allowed because by double excluding the Maryland pension there was no Maryland income for my spouse so we were not eligible. I had to fix the pension exclusion first.

 I went to forms view and opened the pension exclusion worksheet. I did not override the calculated number. Instead I used a worksheet for that line item and entered the correct items and amounts. The worksheet picked up this number and the pension exclusion was corrected! The software worked fine after that and I was able to e-file.  Thank you to all who tried to help!

[bob110]

TurboTax is not giving us Marylands two-income subtraction.  States that "Both me and spouse must have taxable income to qualify."  My spouse has 5 W2s loaded with income and state tax withheld.  It seems like the s/w is subtracting the $5000 deduction ( I get off of my military retirement) and wiping out her income... I CANNOT resolve this!

[ken-koroknay]

The Maryland tax booklet is quite clear that as long as your pension is included in your federal return it can be used as a pension exclusion on your Maryland state return.   So by example you have a Maryland state pension that paid you $10,000 in 2019 and your 1099-R has $20,000 in Pick-Up Contributions.  Just because your $10,000 pension is exempt from state tax it is still taxable on your federal return and therefore eligible as pension exclusion.  Why would anyone think differently?

[thenormte]

I am asking if my Federal Civil Service Pension is qualified for exclusion under the Marlyand Tax Code.