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Is Maryland Pension Exclusion Calculation correct?

Forum|Forum|4 years ago
March 17, 2022
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I am not expert on the Maryland Pension Exclusion Calculation for those filling Maryland state taxes, but per the link below at one point it was done wrong - I got a letter from the IRS for 2017 about it, about a year ago. Is anyone who really understands how this exclusion works, able to verify that this year the calculation is correct? Thanks!

https://ttlc.intuit.com/community/retirement/discussion/i-think-maryland-pension-exclusion-calculation-is-wrong/00/2328362

Best answer by dmertz

Hi @GeorgeM777 did you see my latest post? Was there an update that reversed this so charitable gift annuities are no longer counted?

Maryland law states that only distributions from an "employee retirement system" qualify. A charitable gift annuity is not an employer plan, so code-F distributions never qualify. TurboTax should know this the same way that TurboTax knows that any Form 1099-R with the IRA/SEP/SIMPLE box marked does not qualify.

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GeorgeM777

Yes, TurboTax will calculate what portion, if any, of your pension is not subject to MD tax. In other words, TurboTax will exclude $34,300 of pension income provided you are eligible for the exclusion. Complete your federal return first, and especially the part that relates to your pension, before preparing your MD return. When you are ready to prepare your MD return, you will see the below screen (this was from our test return) that relates to the MD pension exclusion.

If you are 65 or older or totally disabled (or your spouse is totally disabled), you may qualify for Maryland's maximum pension exclusion of $34,300 for tax year 2021. If you're eligible, you may be able to subtract some of your taxable pension and retirement annuity income from your federal adjusted gross income.

This subtraction applies only if:

You were 65 or older or totally disabled, or your spouse was totally disabled, on the last day of the tax year; and
You included on your federal return income received as a pension, annuity or endowment from an "employee retirement system." Please note that these include qualified defined benefit and defined contribution pension plans, 401(a) plans, 401(k) plans, 403(b) plans, and 457(b) plans.
A traditional IRA, a Roth IRA, a simplified employee plan (SEP), a Keogh Plan or an ineligible deferred compensation plan does not qualify.

@Don-TT

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D

Don-TTAuthor

Thanks @GeorgeM777 that was a very helpful explanation, I understand and think I can parse through the forms now with a follow-up for you, as I think there is a problem. Here is what I am seeing (this is actually my mom's return that I am doing for her):

TT reports a pension exclusion on line 10, form 502, of $15,665.

That comes from this -- on the Maryland 502 Pension Exclusion Computation Worksheet generated by TT, line 2 is the $34,300 max exclusion you referred to. Line 3 is $18,635, her total Social Security benefits. So line 4 shows an exclusion of $15,665, reported on the 502 line 10. If I understand correctly, that amount is a valid exclusion BECAUSE line 1a on the Maryland 502 Pension Exclusion Computation Worksheet - "Qualified pension and retirement annuity included in Fed AGI" is $18,105. This comes from 2 annuities reported on 1099-R's on the Federal return.

BUT! The $18,105 is not correct, if I understand what you explained! This amount comes from two annuities as I wrote above, but they are CHARITABLE GIFT annuities, and they are most certainly NOT from an "employee retirement system"! Both hard-copy 1099-R's reported show Box 7, "Distribution codes", of "F" - which is "Charitable Gift Annuity" - and that is what they are. Both 1099-R's in TT, Federal forms list, do show the "F" for each. So shouldn't line 1a be $0, and there be no Maryland Pension Exclusion? It appears TT is taking charitable gift annuities and using them for a possible pension exclusion.

Thanks for your review of this!