My 1099-R comes fromDFASC - military disability service-connected retirment pay and not from any of the 4 options listed in the screen

[m10asun]

This income is NOT taxable in my state but the system is saying I have to pay taxes on it

[DanP0428]

It is not taxable.  Do not enter it into TurboTax just save the 1099-R with your tax records.

[BillM223]

Income reported on a 1099-R is normally taxable on the federal return. The question is how much of this income is from DFAS (so, taxable retirement) and how much is from the VA (disability).

You should read this TurboTax thread (two pages) to see if this helps.

Note that if you determine that only part (or none) of the 1099-R amount is taxable, that you can enter a negative number in Other Income (as noted on the second page) to offset the 1099-R amount.

But I would not encourage you to leave the 1099-R off your return, since the IRS has a copy of it and might wonder why you did not report the income. Better to report it and back out what needs to be backed out, with an explanation.

@m10asun

[m10asun]

Thank - I'll look for the thread but so far there is no option to change anything within TurboTax for the 1099-R itself.  And without being able to list the payee as the DFASC it is treated as retirment income from a financial institution instead of as disability retirement pay.  It may be taxable on federal level but defnitely not NJ state and TurboTax is not processing this correctly at all.  

[AmyC]

 Follow these steps.

1. When you enter the 1099-R, it will ask you to select a state.

2. Assuming box 7 is code 3 for disability

The Learn More button tells you:

New Jersey Special Handling of Pension Distributions

TurboTax New Jersey uses the following pension codes:
M - Military pension or survivor's benefit

D - Disability benefits received for total and permanent disability (under age 65 only - if age 65 or above, use the Three-year or General rule)

T - Three-year rule pension benefits

G - General rule pension benefits

You can deduct disability benefits received if you were totally and permanently disabled and you are under age 65.

2.You must go through answering all the questions in federal.

3.When you get to NJ, be sure to mark Disabled Filer Information under Other Situations.

4.Then select the box that says Check if Disabled.

NJ should not be taxing any military pension or disability.