I'm a NJ tax filer and received a W-2 for a nonqualified plan distribution, some of which is taxed in NJ (line 20a) or excluded (line 20b). How do I enter in Turbotax?

Forum|Forum|6 years ago
February 22, 2020
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The W-2 reports the distribution in both box 1 (wages) and 11 (nonqualified plans). But the NJ portion of Turbotax doesn't recognize this as a retirement plan distribution for lines 20a/20b of the state form, and instead treats it as wages. How do I get turbotax to treat the distribution as a retirement plan distribution for NJ state purposes?

TurboTax Premier Online

fanfare

Employee

Amount in box 1 of a W-2 will be treated as wages.

What makes you think a portion is not-taxable, and how is the fraction determined?

mandlerr

This is a difference between Federal and NJ income tax treatment. For federal income tax purposes, payroll contributions to nonqualified retirement plans are EXCLUDED from income when made; distributions are fully taxable as income when distributed. For NJ income tax purposes, payroll contributions to nonqualified retirement plans are INCLUDED as income when made; distributions are taxable only for amounts that exceed the previously taxed contributions.

My W-2 includes the nonqualified distributions as both wages (box 1) and as a nonqualified plan distribution (box 11). After entering the W-2, Turbotax asks me to confirm whether the distribution is from a nonqualified pension plan (which it is), but then goes on to a different topic.

I've been playing around with Turbotax and confirmed that if the nonqualified pension distribution was reported on a 1099-R instead of a W-2, turbotax would immediately follow up with screens asking "Where Is This Distribution From" for NJ purposes and "Was This Distribution from a Qualified Plan?" The NJ interview would follow up by asking for my cost basis in the nonqualified plan (i.e., the amount of contributions previously taxed), and then would correctly calculate the portion of the distribution that is taxable.

So the problem I have is that even though Turbotax asks (as part of the W-2 input) whether the amounts reported represent a distribution from a non-qualified pension plan, none of the other NJ questions for nonqualified pension distributions (described in the paragraph above) are asked, and turbotax incorrectly treats the entire nonqualified distribution as taxable. I believe that this is a programming error and am not sure how to get Turbotax to fix this.

fanfare

Employee

Even if you could get your claimed exclusion amount on NJ Line 20b, it would not help you because that amount is not subtracted from taxable income.

I don't see any other place for such a subtraction.

kenbkl

I have the same problem. The step by step method incorrectly uses the W2 box 16 of NJ taxable income and pulls it into the compensation (W-2) area of the NJ1040. It should be on on line 20b .

The only work aronund I found was to put a zero in box 16 of thr W-2 step by step, then enter that amount in the pension work sheet part D on the form view. Line one is your total contributions to the plan, line 2 total in plan and line 4 yout distribution this year. The program will figure out how much to put on line 20 a and b on the NJ 1040. If you don't zero out the step by step W2 state income, you will pay tax on this amount twice.

Hopefully, Turbotax will fix this.