Turbotax is using my Mississippi state retirement as income; pensions are not taxed in Mississippi. This has not happened in previous years using Turbotax.

[BillM223]

Pensions are not taxed in Mississippi, but 

early distributions from retirement funds are taxed in Mississippi.

The state of Mississippi says this,

“Is retirement income taxable?

​Generally, retirement income, pensions and annuities are not subject to Mississippi Income tax if the recipient has met the retirement plan requirements. Early distributions are not considered retirement income and may be subject to tax. ​”

See this Mississippi FAQ.

May I assume that you have a 1099-R for your pension income that has a distribution code of "2"? That indicate an early distribution, at least on the federal level. This is triggering TurboTax to show the pension income as taxable.

I assume that on your 1099-R, the distribution code is "2". This describes the distribution as an early distribution. Therefore, based on the input, TurboTax is correctly marking the distribution as taxable in Mississippi.

However, the distribution is an "early distribution" for federal purposes, where generally retirement plan distributions made before the taxpayer if 59 1/2 are considered early.

What is not clear is if the state of Mississippi considers a distribution that is prior to age 59 1/2 to be an early distribution if the taxpayer has reached the full retirement age of the retirement plan.

Currently, TurboTax has no way of determining that the taxpayer has met the retirement plan's requirement.

If you are positive that the pension distribution should not be taxable in Mississippi, there are two workarounds:

The first is to change the distribution code to "7" on the W-2. This will cause the distribution to not be taxable in Mississippi. It will not affect your federal return (the distribution will still be taxed on the federal return, as it should be).

The second is to go into the Mississippi interview and proceed to the screen with the title "Enter Any Other Income or Losses". On this screen, enter the description of "Adjustment for pension" and the amount of the distribution as a negative number. This will back the pension distribution out of Mississippi taxable income.

[dukes909]

1. What you keep leaving out is that the code is (2) Early withdrawal WITH EXCEPTION.  Ok?

2) I am not going to go through addressing your contention again that it is an early distribution that possibly, could be, maybe should be taxed in Mississippi because we aren't really sure at TurboTax although their seems to be a great preponderance of evidence to the contrary..... It is not and every retiree under 59.5 for the past several years knows this or else Mississippi would be auditing and charging them for unpaid taxes.  Ok? 

Let's leave both of those things for the time being and look at the fact that TURBOTAX has operated with the assumption for EVERY YEAR up until this one that there is no tax due in Mississippi on public employees retirement benefits if they are under the age of 59.5.  Every person on the other thread knows this as that is how TurboTax has calculated their taxes previously. Ok? 

We are left with 2 possibilities:

1) Every year, up until this one, TurboTax has calculated taxes incorrectly for every retiree in the state of Mississippi that had the code "2" - Early Withdrawal WITH EXCEPTION (a reminder, in case you forgot) and then suddenly in 2021 they changed course and are now calculating taxes correctly.

2) Every year up until this one, TurboTax has calculated taxes correctly for every retiree in the state of Mississippi that had the code "2" and this year, they have it incorrect when they say state pension benefits are taxable.

It can only be one of the above. Which is it?

Regards.

@BillM223 

2)

[dukes909]

BRAVO KEEP DELETING MY REPLIES

[dukes909]

@BillM223 continues to delete my replies so I will keep posting them here until they address this situation:

There are only 2 possibilities for what we are seeing this year with TurboTax asserting state retirees must pay taxes on their benefits in Mississippi prior to age 59.5:

1) Every year, prior to this one, TurboTax has calculated taxes for state retirees benefits in Mississippi INCORRECTLY and this year they suddenly have fixed the bug in their program so that the calculated taxes due are correct. (so every state retiree that did not pay taxes on their benefites prior to this year is and has been owing the state of Mississippi back taxes with interest.)

2) Every year, prior to this one, TurboTax has calculated taxes for state retirees benefits in Mississippi CORRECTLY and this year they suddenly have a bug in their program so that the calculated taxes due are incorrect.

It can only be one of the above.  Which is it TurboTax?

Regards

[scottg29]

Since I have been retired for four years and used TurboTax every year.  Had no issues with the prior three years returns.  Distribution codes have been "2" on all my previous 1099-R forms.  I am 100% positive that (Mississippi) Public Employment Retirement is not taxable in the state of Mississippi. This type of retirement is based on years of service.  

On the two workarounds you suggest:

I don't like the first one, changing the distribution code from "2" to "7" on the 1099-R (not W-2, that was a typo I suppose).  While that does work, it is an official government document, I don't want to change it.

The second one, enter the amount of distribution as a negative number with a description of "Adjustment for pension." Yes, that does work as well.  If I had to select one of the workarounds,  number two would be my choice.

Additionally, I have used TurboTax for well over 20 years, never have I had to do a "workaround" to properly file my federal or state taxes. This does raise a red flag on the issue.

However, I would like to have the assurance of the TurboTax experts that workaround number two is acceptable to the Mississippi Department of Revenue.  Can you answer with a TurboTax 100% guarantee it is acceptable to MDOR?

[AmyC]

If you meet the service requirement but not the age requirement, you need to let the program know.

Tell the federal it is a regular pension:

When you went through the federal entry screen of the  1099-R, it asked questions and commented that with code 2 there was no extra penalty. It asked if you were a safety officer, what did you do with the money - cashed it, any periodic payments, yes- regular payments from this retirement account, payment start year, 2020 or before selection, describe the taxable amount, yes, box 2a is taxable amount.

Tell the state it meets the service requirements: Move to MS return:   Proceed to the screen with the title Enter Any Other Income or Losses. Enter Service requirement pension adjustment and the amount of the distribution as a negative number. 

MS says Taxable amounts include:

:• Pension and annuity distributions that are taxable as early or excess distributions under the federal rules (see federal Form 5329).

• Separation pay.

• Deferred compensation plan distributions received prior to attainment of retirement age and/or service requirements.

@scottg29

[dukes909]

Are we still doing this? No this is not correct.  Mississippi public employees retirement system benefits are not taxable in the state of Mississippi.  

[scottg29]

Amy,

Yes this does work.

"Tell the state it meets the service requirements: Move to MS return:   Proceed to the screen with the title Enter Any Other Income or Losses. Enter Service requirement pension adjustment and the amount of the distribution as a negative number. "

Have you (TurboTax) verified with Mississippi Department of Revenue, this is the proper way to handle?

Thanks.

[AmyC]

Yes this is acceptable by the state to remove the income in that manner. 

@scottg29

[AndrewJK]

@BillM223:

If what you say is true, explain this scenario that happened to me:

1) I use TT2019 to file my 2019 MS taxes in 2020 and had a liability of $0, which is correct. 

2) I purchase and start using TT2020 in early 2021.

3) I realize I should have taken the sales tax deduction on my 2019 taxes.

4) Using TT2020, I file an amended Federal return (only, since I owe no MS taxes).

5) The amended return produced by TT2020 for 2019 now shows I owe over $2700 to MS!

Regardless anything you've posted, clearly TT2020 is calculating things differently.  I made *zero* changes to my 2019 taxes other than taking the Sales Tax deduction, and yet magically TT2020 now says I owe money.  On top of that, like the others, my TT2020 filing for 2020 is incorrectly plugging in both my federal pension (tax free in MS) *and* my Code-2 IRA distribution (tax free in MS). 

Your suggestion to just use Code-7 isn't a fix; it's a workaround. For whatever reason, Intuit has changed how TT handles Code-2 at the State level, at least for MS.  Whether that's an unintentional change (i.e. programming bug) or intentional (i.e. lawyers), there has indeed been a change in the program.  If you say otherwise, I would like to know how my 2019 taxes when from $0 to $2700 with my taking an additional deduction!

If I must incorrectly use Code-7 or enter an "Adjust to Pension" item for a workaround to get my MS taxes appearing correctly, I guess that's what I'll have to do.  This is a really lame way of resolving an issue that's never previously been an issue I've been using TT since the early 1990s, but if this is the "answer" Intuit has, perhaps it's time I do my own "workaround" and start using a competing software application.

Finally, your statement of "Currently, TurboTax has no way of determining that the taxpayer has met the retirement plan's requirement" is laughable.  How did TT manage to determine it from 2015-2019 for my taxes?  How was TT able to determine it when I filed my 2019 taxes using TT2019 but it couldn't determine it using TT2020 to amend?  Apparently Intuit is also no longer able to determine my pension as a federal retiree is tax-exempt in Mississippi, given it's part of the income TT2020 is showing for my state return.

Something is screwed up in TT2020. It would be nice to have curiosity about and investigation into it from Intuit instead of poor--perhaps even fraudulent--workarounds on one's tax forms.

[AndrewJK]

Of course they won't guarantee what you ask. Heck, we can't even get them to admit there's a problem with their program this year! Like you, I am 100% positive my Federal pension (Code 2) and my 72(t) IRA distribution (Code 2) are 100% tax exempt in MS. TT is either lying to us now or has been lying to us all the previous years.

As I told BillM223 in a reply in the thread, there's clearly a problem with TT2020 because it changed my 2019 tax bill to MS from $0 to over $2700 when I amended my 2019 return from inside TT2020--even with the amendment being a deduction.  How much do you want to bet if I amend it from inside TT2019, it doesn't have the error?  Funny how TT could determine things before but not now.  I smell lawyers issuing some CYA guidance. The workarounds BillM223 likewise concern me. But what do they care? It's your signature and perjury, not theirs! 

[ReneeM7122]

If TurboTax is not treating your MI pension as nontaxable, please enter the necessary information in your Federal Income tax return and then in the State income tax return.

Here are the steps to enter your exempt State employee pension:

On the  Federal Income Tax  portion:

1. In the search or find box, type in 1099-R
2. Click on Jump to 1099-R
3. Scroll down to Retirement Plans and Social Security
4. At IRA,401(k), Pension Plan Withdrawals (1099-R), click Start (or Update)
5. Enter your 1099-R or if you have entered it, click on Edit then Continue
6. Answer the next questions until you get to the Where Is This Distribution From? screen
7. Select the source State Employees and enter the information requested:
8. Click on Continue
9. Click on From a Qualified Plan
10. Continue answering the questions

On the State return portion: 

1. At the Changes to Federal Income page, scroll down to Received retirement income, click Start (or Update)
2. At the Retirement Distributions Summary page, click on Edit State
3. If no additional information is required, click on Continue
4. Click on Done

Here is a TurboTax article about retirement.

@AndrewJK

[JCarson]

@ReneeM7122 
I’ve had the same issues.  This is the way it worked in the past.  I’ve always purchased the CD option.  This year I thought I was getting the CD version through Amazon but ended up with a download code instead.  I downloaded through the TT process entered the code and went to work.  As always there were updates to he program.  All normal processes.  There is no option #6 or #7 from your instructions listed for me.  It has been there in the past and that was the normal procedure.  This is where the ball has been dropped.

Please if someone that is actually in TT IT development/programming needs to see this.  I don’t like the idea of a workaround on a federal tax form by changing the official 1099-R document sent to me from a code “2” to a “7”.  I’ve been using TT for 25 years now and never been asked to “falsify” my entries to make the program work correctly.

[AndrewJK]

@BillM223 

"Pensions are not taxed in Mississippi..."

And yet TT2020 is listing my Federal pension as taxable income. Given TT2020 knows it's a CSA-1099-R (i.e. federal pension), I don't know what other excuse Intuit can offer.