Transfer of federal self-employment tax to my state return

[Eyedrug]

TurboTax Home and Business 2023 did not transfer my federal self-employment tax to my state (Alabama) return. I had to enter it manually in "forms" view on the Alabama return as there was no option to enter it in the step-by-step view. Had I not made the correction myself, I would have lost a very significant itemized deduction on the Alabama return. TurboTax has made the transfer in the past, but not this year, and I have always qualified for the larger itemized deduction rather than the standard deduction.

[BillM223]

Could you tell me on what form and line the self-employed tax was added on the 2022 Alabama return, and do you expect it to be on the same form and line in 2023?

[DoninGA]

@BillM223 Not to step in here but this one caught my attention and I had to really search around.

On the Alabama Form 40 Schedule A, the Federal Self-Employment Tax can be entered on Line 6.  This is the same for tax year 2023 as it was for tax year 2022.

[BillM223]

@DoninGA 

Thanks for jumping in, because I couldn't understand why I wasn't finding anything about the current year federal self-employment tax.

Yes, I found the reference to Line 6 on Schedule A, but the instructions state:

That is, you can deduct the SE tax paid in 2023 for a 2022 return (or earlier). In the Alabama interview there is a specific question about this.

However, it appears to me that the OP is asking about the transfer of 2023's SE tax to the Alabama return, which is not what the instructions refer to. It seems to me that 2023 SE tax is not deductible in Alabama.

I would appreciate any insight that you might have in your home state.

[DoninGA]

@BillM223 After further reading of the instructions I agree with you that the 2023 SE taxes should not be entered on the 2023 Form 40 Schedule A.  Only the SE taxes paid in 2023 for tax year 2022 or prior tax years can be entered.

And Alabama is not my home state, although I travel through there a lot.  I live next door in Georgia.

[BillM223]

@DoninGA 

Oops, sorry about misplacing you...must be time for a break 😉

[Eyedrug]

For 2022 it was transferred by TurboTax to Alabama Schedule A, line 6. For 2023, TurboTax did not make the transfer, and I added it manually to the same line 6 on Alabama Schedule A.

[BillM223]

"I added it manually" - what is "it"? Did you enter the 2022 self-employment amount that you paid in 2023, as the instructions stated?

I had understood you to suggest that you thought that the current year's (2023) self-employment tax should be automatically transferred to Line 6 of the 2023 AL Schedule A. This would not be correct, according to the state's instructions on page 19.

[Eyedrug]

It seems to me that if SE tax is not deductible in Alabama for 2023, the state would have removed line 6 in Schedule A or brought to taxpayer's attention that it is no longer deductible.

[DoninGA]

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@Eyedrug wrote:

For 2022 it was transferred by TurboTax to Alabama Schedule A, line 6. For 2023, TurboTax did not make the transfer, and I added it manually to the same line 6 on Alabama Schedule A.

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As stated in the Form 40 Schedule A for Line 6 -

Federal Self-Employment Taxes (line 6). You can deduct the Federal self-employment tax you paid during the year 2023 for the tax year 2022 and/or prior years.

See Alabama Form 40 Instructions for 2023 page 19 - https://www.revenue.alabama.gov/ultraviewer/viewer/basic_viewer/index.html?form=2024/01/23f40bk.pdf

[BillM223]

That is not how I read it. The state is allowing you to deduct the amount on line 6, but a year in arrears.

I looked at the instructions for 2022, and as I recall, they said the same thing but with the years adjusted so that you could deduct a payment made in 2022 for self-employment tax generated for 2021.

What the instructions don't suggest is that the current year (2023) self-employment tax should be automatically transferred to Line 6 of the 2023 AL tax return. Therefore, TurboTax is operating correctly.

[Eyedrug · Accepted solution]

Thanks for sending along the Alabama instructions. You are correct, the 2023 SE tax does not appear to be deductible. I have gone back to look at my state tax returns (prepared with TurboTax) for every year dating back to 2015. Without exception, TurboTax has made the SE transfer for that year from the federal to the Alabama return (Schedule A, line 6). Thank you for your assistance with this question. I will attempt to get some kind of official response from the Ala Dept of Revenue for clarification.