Turbo Tax not allowing correct treatment of box 11

[JasonD100]

My W2 box 11 includes both 1) actual payment distributions I received as income and 2) the value of RSUs used to deduct shares to pay FICA/Medicare taxes by my former employer since I am retirement eligible.

When turbo tax asks "Did you take money out of your nonqualified pension plan?", if I answer Yes and enter the amount of item 1 above (payment distributions), I receive an error saying the amount must equal box 11. 

I do not want to include item 2 above (RSU amount) because I am concerned I would be taxed on that amount.

[DavidD66]

If you were issued RSUs to pay payroll taxes (Social Security & Medicare) then the value of those RSUs is taxable income,  Unless it was reported another way (e.g. Form W-2) it would be correct for it to be included with the distribution from your non-qualified plan. 

[JasonD100]

For clarification, the RSU value included in box 11 is the total value of the RSUs at the time the taxes were calculated and paid.  The taxes due were paid by deducting from the RSUs so the total number of RSUs remaining were reduced.  However, I did not receive any income because those remaining RSUs have not yet vested.

In prior years, I answered No to the TurboTax question because the only thing in box 11 was the value of the RSUs as described in the paragraph above.  This year is different because box 11 now contains a mix of two different scenarios (income from an actual distribution which is included in box 1 and the value of RSUs which have not yet vested).

[AmyC]

Your box 11 is an issue with the mix so I think the easiest solution is to break your w2 in to 2 forms. Follow these steps:

1. For the w2 that you have entered:
   1. Reduce box 1 wages by $1
   2. Remove the RSU value from box 11. leaving only the amount of actual distribution
   3. When TurboTax asks Did you take money out?, select yes
   4. Enter the same amount
2. Create a new w2:
   1. Enter wage of $1
   2. You may need to enter 0 for boxes 2-5
   3. Box 11 enter the RSU value
   4. When TurboTax asks about taking money out, select No

Important notes:

• The RSU shares deducted to pay FICA - keep track of that value and be sure to include it in the cost basis of the remaining shares.
• The IRS totals your w2 income which works perfectly with what is done here. 
• I want to urge you to create a financial notebook that is kept separate from your tax return. Keep it safe and each year, add your year-end statements from all your financial accounts plus a copy of your W2’s, your  carryover information, and proof of your basis in your various investments. You must keep tax records  from the time you purchase until sold/ loss used plus 3 years. It is very easy to lose track of disallowed losses, carryforwards,  and basis. This can be a digital or paper notebook.

[JasonD100]

Thanks for the response.  That approach makes sense to get the totals correct on Line 1a and Line 8 on the 1040.

Before you had responded, I found another way to accomplish the same thing which essentially bypasses the TurboTax screen edit where it asks whether money was taken out.  I answered Yes and put in the total amount for the State just to get past the screen.  Then, I went to Forms view and edited the box 11 section on the W2.  On the form, I did this...

1. For the "Nonqualified plans" box I left that amount alone.  It is the total box 11 amount on the W2 that I entered on the TurboTax screen where I entered all the W2 data.
2. Right underneath that is the "Distributions from sect. 457 and nonqualified plans (Important see Help)" box.  I changed that value to the actual distribution amount I received (which is captured in box 1 on W2).
3. Right underneath that is the section for what states the distribution was allocated.  I changed the State amount from the box 11 total to the actual distribution amount (which is the same value as bullet 2 above since I just had one state).

Changing those values on the W2 form seems to have it then flow through all the worksheets and eventually to the 1040 automatically (as one would expect).  To double check, I checked Line 1a and 8 on the 1040 and they are correct.  Line 1a contains everything less the distribution amount.  And Line 8 contains the distribution amount.  And Line 9 correctly adds back up to the correct total of income.