Form W-2

[PADenny]

Yes, it says Nonqualified Dist.

I am using the desktop version of TurboTax (for a Mac), and I enter my information using EasyStep.

The W-2 information is exactly the same this year as in past years, with the employer ID info being the same.

As to the error, it only appears during the Review process.  As to the highlighted item requiring correction, it shows the "PA" in the shaded box (with the wording preceding it being the wording I noted in quotation marks in my message).

I have gone through the interview process a number of times.  The only unusual thing I have noted is that TT requires me to enter a state and an amount when I select that I took the money out of my nonqualified plan, even though for PA purposes there is no taxable distribution.  I have been entering "Pennsylvania" via the dropdown box, and the full distribution shown in Box 1 of the W-2.

The employer ID has been entered correctly.

As noted in my original message, I have tried excluding any information from boxes 15-17, and other versions thereof; but the error message continues.  I have also tried re-entering the W-2, but with no success.

I wonder whether the issue is somehow related to the dropdown in TT showing Pennsylvania, while the box 15 info uses the abbreviation PA?  If so, I don't know how to correct this.

[MonikaK1]

Did you try deleting the Box 15 entries altogether, or deleting the entire W-2 and reentering it without Box 15?

I tried replicating this (on a Mac) and did get similar errors, but it allowed me to continue on to the File section.

Some review errors that don't prevent e-filing do allow you to continue. If you are otherwise ready to file, try continuing without addressing this error.

[PADenny]

I hesitate to not include the Box 15 information in TurboTax since there is in fact information shown on my W-2 for boxes 15 - 17, with boxes 16 and 17 being "$0.00", and not blank.  I have included this information in all of my TurboTax completions in past years.

When you say that you replicated this on a Mac and got similar errors, what did you replicate exactly?  Did you include information in boxes 15 - 17 and receive the errors, or are you saying that you left boxes 15 - 17 blank (with info being included as to taking a distribution from the plan, and including a state ID of PA and an amount in the sub-sections of Box 11, OR maybe some other approach(es)?

And did your replication provide for the income/distribution to be included in Line 1 or 8 of the return?  It is my understanding from some posts in the past year or so that the IRS made a change for last year's reporting (2022) such that this type of income is now to be reported on Line 8, Additional Income.

I also hesitate to try and file a return that has review errors.  TurboTax should frankly not allow this to happen; rather, if there is a programming error, make the necessary programming change.  Since you were also able to see the error in your testing, it seems to me it is obviously a programming issue.

[Vanessa A]

Entering 0 does not mean anything to the state, IRS or TurboTax.  It is something that frequently causes errors.  If you have a state name in box 15, but only 0 in box 16 and 17, then the best thing to do is to leave boxes 15 to 17 blank.  Otherwise, the program is looking to generate a form for the state but there is no need for the form.  

You are not adding any income or making any subtractions by entering 0.  It will not have any type of affect on the numbers on your return or the forms that are PROPERLY generated.  If you enter a $0 on some forms it will generate a form that should not be included on your return.  This in turn would create other issues with your return.  

It is much better to just leave blanks where there are 0's.

[PADenny]

Vanessa A and MonikaK1:

I had an opportunity today to delete my W-2 for the non qualified pension payments, and I reentered it without including any information in Boxes 15 - 17.  The EasyStep process asks whether I took money out of my nonqualified pension plan.  I tried to proceed without answering the question, but it ultimately required me to make a selection.  I selected "Yes", and a dropdown box appeared requiring the State to be identified, and the amount.  I selected "Pennsylvania" and entered the amount consistent with the amount in Box 1 of the W-2.  Smart Check in the Federal section still provides the error message that the State ID does not match with any states entered in Box 15, and notes "PA" in the shaded box as the issue.  [I did note that the W-2 income was properly being shown on Line 8 of the Federal return as Additional Income.]

I also noted that the same error surfaces when I perform the overall review that is inclusive of my PA return (the review that occur prior to the filing process).

Additional thoughts on how to address this issue, and actions I should take?

[MonikaK1]

Because this is not an error in anything that affects your tax return, but an issue with the way that particular screen is coded in the program, and I had found that the program allowed me to continue past the final review to the File section ignoring the "error", I recommended that you try proceeding to file. 

We have experienced situations like these before, where some anomaly in a screen produces an "error" in Review but there is no incorrect tax information or critical data inconsistency that should affect filing, so the program can continue if you ignore the error.

In the meantime, I am reporting the issue for investigation.

In order for us to troubleshoot this issue, you can send us a “diagnostic” file that has your “numbers” but not your personal information. If you would like to do this, here are the instructions for TurboTax Desktop for Mac users:

1. From the black bar at the top of your screen, select Help
2. Click Send Tax File to TurboTax Agent
3. Click Send on the message that pops up
4. TurboTax will create a "sanitized" copy of your return information with no personal info
5. Post the 7-digit token number here in this thread

Additional comment: Upon additional review, I believe the issue is really that your employer didn't identify any state wages in Boxes 15-17. The follow-up screen in TurboTax that asks you to confirm whether the amount in Box 11 was a contribution to or a deduction from a nonqualified plan, and to identify the state, is there to ensure the amount is identified and treated correctly.

Distributions from a nonqualified deferred compensation plan that are attributable to elective deferrals are subject to Pennsylvania Personal Income Tax. However, distributions that are attributable to previously taxed elective deferrals are not subject to Pennsylvania Personal Income Tax or employer withholding at the time they are distributed from the plan under the rules outlined below. The cost recovery method is used to account for deferrals that were previously subject to tax. See here for more information.

 [Edited 03/27/24| 9:11am PST] 

@PADenny :  (edited) 

[PADenny]

MonikaK1:

Consistent with your input, and that of Vanessa A, I left boxes 15 - 17 blank on the W-2 within TT.  Although the error message was still being received, I proceeded as you suggested through the Efile process for both Federal and PA.  Unfortunately, after entering the required information, including payment of the PA Efiling fee, TT would not allow me to Efile.  A message was received stating that "we need a little more information that we didn't get earlier."  I selected Continue and the prior error message re the PA entry not matching with any states in Box 15 was shown.  The option identified was to paper file.  My strong desire is to Efile (and I already paid for it).

The email notice I received from TurboTax Community on 3/27/24 did not include the input from you that is now included in your message as an "Additional comment" (and the format of the input regarding sending a diagnostic file was in a different format (numbered).  I did send a diagnostic file and its token # is 1221467.

As to the "PA" noted in the Nonqualified Distribution, I tried to leave that field blank, and also noted that it would only take 2 digits, and not numbers.  I found no entry that would eliminate the error message.

As to your Additional comment that I now see: 

1) I have been receiving payments under this pension plan for over 7 years, and the reporting on the W-2 by my former employer has been consistent, with no PA tax withheld (and field 15 has had PA and employer number included, but fields 16 and 17 have had "$0").

2) As required by PA, each year I have sent to them a copy of the applicable W-2 and informed them as follows: "A W-2 was received from Vanguard Fiduciary Trust Company that includes wages of $XX,XXX.XX from a pension plan.  The plan meets the four characteristics of a "Qualified Plan Program" per Answer ID 433 published 12/03/2002 by the PA Department of Revenue: Therefore not taxable for PA purposes."  Another employee from this same company retired in 2022, and also receives payments from the same pension plan.  He received an inquiry from PA as to the taxability of this plan, and after providing the exact same input as noted in my quotes, PA accepted the amount as nontaxable.  In addition, I have never received any form of notice regarding the amount being taxable, and PA has NOT changed its laws as to such payments.

3) As to the Distributions from the plan: I made no elective deferrals to the plan.  It is entirely funded by the company.  In addition, since I made NO elective deferrals, there were definitely never any previously taxed elective deferrals.

Hopefully this information, and the diagnostic file assists in bring a solution quickly forward so as to allow me to Efile both the Federal and PA returns before the 4/15/24 deadline. 

[PADenny]

As additional input, I reached out to an attorney who is also a retiree from the same pension plan, and who is familiar with the plan.  He noted that although the W-2 is non-qualified it only is non-qualified for Federal purposes as the Plan did not satisfy the salary hierarchy discrimination test; but it is qualified for PA purposes as it meets the qualification tests.  Therefore, it is eligible (no tax) in PA.

Hopefully this situation can be addressed by TurboTax (since 2023 is the first year where this issue has surfaced).

[MonikaK1]

Thank you for sending the diagnostic file and for the additional information.

I reviewed the file and tried several different actions to get rid of the error. The one that worked was to enter PA, the Federal ID number, and the total wages in Boxes 15 and 16. Then, I had to mark the wages as nontaxable on the Pennsylvania return in order to produce the same dollar result you had. This (making "wages" nontaxable for the State) also raised an error but it didn't seem to stop the process from proceeding.

I am elevating this issue for further review.

[PADenny]

You are welcome.

As to your input:

1) I am somewhat hesitant to place total wages into Boxes 15 and 16 (I assume you mean 16 and 17) when the actual W-2 sent to the IRS and PA contain "$0" in those fields (as it was in past years, and for which this is the 1st year of any issue).

2) Weird that you would have to enter the Federal ID number in Box 15.

3) How did you mark the wages as nontaxable on the PA return (i.e., what process used)?

4) You mention there was now a different error shown, but it didn't stop the process from proceeding.  Do you mean you were actually able to transmit both the Federal and PA returns?  [The initial error I have been trying to address allowed me to go through the enter filing process, but ultimately provided an error message that wouldn't allow me to transmit the returns when I hit the "Transmit Returns" button.]

Hopefully your elevation of this issue will provide a prompt/timely solution that doesn't seem to me to be a sort of fooling of the system.

[PADenny]

MonikaK1 - I haven't heard back from anyone as to my last response this past Saturday (3/30/24), where I posed a handful of comments/questions as to your post that day in which you ended the post by noting you were elevating this issue for further review.

Any update that could be provided would be much appreciated as the filing deadline is fast approaching.

Thanks in advance for your assistance.

[PADenny]

In re-reading my post from 3/30/24, as to item #1 in that post: MonikaK1 you noted that you inserted total wages in Boxes 15 and 16.  I assumed you meant Boxes 16 and 17 (which are Boxes requiring dollar amounts); having said that, it just hit me that you are describing placing the full total wages in the state income tax field (i.e., 100% withholding).   Doing so would show the W-2 as having a combination of Federal and PA state withholding that would be in excess of the total wages in Box 1. This obviously makes no sense, and makes me even more hesitant to apply the approach you described.

Hopefully a solution will be found to allow for Efiling.

[PADenny]

Sorry MonikaK1.  I believe I was mistaken as to your post on 3/30/24.  In re-reading your post I see that you noted entering PA, the Federal ID number, and the total wages in Boxes 15 and 16.  You don't note what you did with Box 17.  Did you leave it blank, or did you enter $0.00?

As to my responding post on 3/30/24 (continuing the 4 points), I still have all of the comments/questions in those 4 points.  [A revision would be that as to point #1, I am still hesitant to place total wages in Box 16 when the actual W-2 sent to the IRS and PA contain "$0.00" in Boxes 16 and 17.  In addition, using the Federal ID number for Box 15 would also be inconsistent with my actual W-2.]

Looking forward to receiving further input/direction.

[PADenny]

Can someone please provide a status update as to the elevation of my issue by MonikaK1 as noted in her post on 3/30/24?  The tax filing deadline is less than a week away and I'd really like to be able to Efile my Federal and PA returns.

[IsabellaG]

I've examined your diagnostic file, and I believe that Monika's solution will enable you to e-file your return with no issues. I realize that you are reluctant to make changes to your W-2 entries, but because it's considered a distribution from a non-qualifying plan,  the program must associate a  State and a dollar amount with the payment in order for the income to be properly reported on line 8 of the 1040. Yours is a somewhat unusual situation.

1. Ener the entire distribution in Box 16 of the W-2, along with  Pennsylvania  and the state identification number for the payer. You would use the correct state ID if you have it, but often you can use the Federal EIN if you don't.  
2. Enter the correct amount in Box 11 for Nonqualified plans.
3. Continue through the program and on the screen Did you take money out of your nonqualified pension plan? Enter Pennsylvania and the full amount of the payment. That finishes up the federal side.
4. Go to your state return, and choose to Edit.
5. On the screen You've Finished Your Pennsylvania Return, choose Update on Income and Adjustments.
6. On the Compensation Summary, Choose Edit.
7. On Verify this Income, Check that the Entire amount of this income is not taxable in PA. 
8. You will see the message This compensation will not be included in your Pennsylvania taxable income.
9. Continue through the prompts and you should have no errors. 

I followed the above process and it worked for me. Of course, it is your responsibility to determine whether or not any of this income is taxable in Pennsylvania, but it appears that you've already established that. Please see the screenshots below for where you will make your entries

.