Turbo Tax Figuring State Tax Wrong

[MattE]

So, in the process of doing my taxes using Turbo Tax, I double-checked its calculations for my state return against the official iFile system for Maryland, and TurboTax is overestimating my total state\local taxes owed for the year by like $2400. I triple-checked this by going and working through the pen-and-paper worksheets for the local and state taxes and confirmed the iFile result. I hadn't filed with Turbo Tax yet, but had I done so my wife and I would've been out something like $1500 on our MD refund. Does anyone know if Turbo Tax offers any kind of recourse for catching that kind of thing, or do they only guarantee accuracy insofar as paying your penalties if their screw up means you owed more than they said?

[Calm Man]

Can you look at what you did and what the turbo tax forms say and see where the discrepancy is? That would be very helpful for you and all of us. I have found discrepancies when I used to try myself and TT was always right.

[MattE]

I actually was just trying to delete this topic because I already found where *I* screwed up, and can't now that you replied haha. I copied something wrong from one of our W-2s into the iFile system and it threw all the math off, and then I used that same figure when doing the pen-and-paper work. A mod can close or delete this topic if they'd like.

[johnep]

I found an error in TT for my North Carolina return. The state gives pensioners a $4,000 deduction but TT did not provide that in its calculation. This increases tax liability by $310 and is clearly their error. I have tried to contact them without success so far. I will do mine manually anyway but I hate that others may have same problem and never know it. NC redid its tax return form this year which might explain the error.

[theduke]

I found an error in TT for my North Carolina return. The state gives pensioners a $4,000 deduction but TT did not provide that in its calculation. This increases tax liability by $310 and is clearly their error. I have tried to contact them without success so far. I will do mine manually anyway but I hate that others may have same problem and never know it. NC redid its tax return form this year which might explain the error.

NC gives a $4,000 deduction for government pensions. If it is non-governmental, then it is a $2,000 deduction. If it is Bailey qualified, then that is a total deduction.

[johnep]

I found an error in TT for my North Carolina return. The state gives pensioners a $4,000 deduction but TT did not provide that in its calculation. This increases tax liability by $310 and is clearly their error. I have tried to contact them without success so far. I will do mine manually anyway but I hate that others may have same problem and never know it. NC redid its tax return form this year which might explain the error.

NC gives a $4,000 deduction for government pensions. If it is non-governmental, then it is a $2,000 deduction. If it is Bailey qualified, then that is a total deduction.

I have both a government pension and a non-government pension. I do not qualify for the Bailey deduction. Mine is clearly a $4,000 deduction. I double checked my federal and discovered that I failed to check a box indicating type of pension for both pensions. So this was my mistake - user error! It now shows correct NC tax owed.

[RustyShackleford]

NC gives a $4,000 deduction for government pensions. If it is non-governmental, then it is a $2,000 deduction. If it is Bailey qualified, then that is a total deduction.

I'm in NC and have a state pension (under the Optional Retirement Program). It has always been my understanding that ALL the pension payment is state-tax exempt (I have letters from the ORP stating this), but I have also seen this $4000 figure. (This is the 'Bailey" thing). So I am confused.

I believe the $2000 applies to any "private" retirement payment. I routinely use my Roth conversion for this (it's in addition to the Bailey). I may be wrong ...

Incidentally, some of my pension is after-tax dollars (I made some after-tax contributions to my retirement plan). As a consequence, a fraction of my pension is federal-tax exempt. When TurboTax subtracts the pension when computing my state taxable income, it subtracts the entire amount, not just the federally-taxable amount. But it's the ORP provider's fault, because they put the entire amount under "state distribution" on my 1099-R. Some years, when I get this weird urge to do the right thing, I change it (so only the federally-taxable amount is subtracted out). One time I even called the NC-DOR and tried ti explain the problem (figuring the state was losing a lot of tax revenue from all the folks with partially federally-tax exempt Bailey-settlement payments). The person on the phone - I kid you not - said "you need to take that up with the TurboTax folks".

[theduke]

NC gives a $4,000 deduction for government pensions. If it is non-governmental, then it is a $2,000 deduction. If it is Bailey qualified, then that is a total deduction.

I'm in NC and have a state pension (under the Optional Retirement Program). It has always been my understanding that ALL the pension payment is state-tax exempt (I have letters from the ORP stating this), but I have also seen this $4000 figure. (This is the 'Bailey" thing). So I am confused.

I believe the $2000 applies to any "private" retirement payment. I routinely use my Roth conversion for this (it's in addition to the Bailey). I may be wrong ...

Incidentally, some of my pension is after-tax dollars (I made some after-tax contributions to my retirement plan). As a consequence, a fraction of my pension is federal-tax exempt. When TurboTax subtracts the pension when computing my state taxable income, it subtracts the entire amount, not just the federally-taxable amount. But it's the ORP provider's fault, because they put the entire amount under "state distribution" on my 1099-R. Some years, when I get this weird urge to do the right thing, I change it (so only the federally-taxable amount is subtracted out). One time I even called the NC-DOR and tried ti explain the problem (figuring the state was losing a lot of tax revenue from all the folks with partially federally-tax exempt Bailey-settlement payments). The person on the phone - I kid you not - said "you need to take that up with the TurboTax folks".

I'm not familiar with the ORP, but I did find this on the NCDOR website.
http://www.dornc.com/practitioner/indiv ... -00-1.html

I use H&R Block at Home software, so I can't answer how TurboTax works. In H&R Block, there are questions in the state return about whether the pension is government, non-government, or Bailey qualified.

[RustyShackleford]

I use H&R Block at Home software, so I can't answer how TurboTax works. In H&R Block, there are questions in the state return about whether the pension is government, non-government, or Bailey qualified.

TurboTax asks the same questions. Like I said, the problem (with deducting my federally-exempt income when computing state taxable income) is not the tax software's fault, it's TIAA-CREFs for putting the wrong number under "state distribution". Trying to get them to change it would be insane (they are idiots). Probably not that many folks with federally-exempt distributions anyhow ...

[johnep]

NC gives a $4,000 deduction for government pensions. If it is non-governmental, then it is a $2,000 deduction. If it is Bailey qualified, then that is a total deduction.

I'm in NC and have a state pension (under the Optional Retirement Program). It has always been my understanding that ALL the pension payment is state-tax exempt (I have letters from the ORP stating this), but I have also seen this $4000 figure. (This is the 'Bailey" thing). So I am confused.

I believe the $2000 applies to any "private" retirement payment. I routinely use my Roth conversion for this (it's in addition to the Bailey). I may be wrong ...

Incidentally, some of my pension is after-tax dollars (I made some after-tax contributions to my retirement plan). As a consequence, a fraction of my pension is federal-tax exempt. When TurboTax subtracts the pension when computing my state taxable income, it subtracts the entire amount, not just the federally-taxable amount. But it's the ORP provider's fault, because they put the entire amount under "state distribution" on my 1099-R. Some years, when I get this weird urge to do the right thing, I change it (so only the federally-taxable amount is subtracted out). One time I even called the NC-DOR and tried ti explain the problem (figuring the state was losing a lot of tax revenue from all the folks with partially federally-tax exempt Bailey-settlement payments). The person on the phone - I kid you not - said "you need to take that up with the TurboTax folks".

The Bailey settlement provides deduction for entire pension provided you had 5 years of service in 1989 (I forget the exact month). It sounds like you are in the Bailey category. Otherwise, a govt pension is entitled to a maximum of $4,000 deduction and, as you said, a private pension can get a maximum of $2,000. However, there is a maximum deduction for both of just $4,000. I do not know if you can take the $2,000 deduction for private pension if you take the Bailey deduction, but I suggest you check that.

If your pension is exempt from NC tax (Bailey settlement) then you would not owe any NC tax, right? Perhaps I am misunderstanding your point on this?

[RustyShackleford]

The Bailey settlement provides deduction for entire pension provided you had 5 years of service in 1989 (I forget the exact month). It sounds like you are in the Bailey category.

I had 5 years of service by 1989, but I switched from the state retirement system to the ORP in 1988, so I'm not sure. I'll guess I'll use the old maxim "it's easier to get forgiveness that to get permission" backed by the letters I have from the ORP telling me it's all state deductible.

I do not know if you can take the $2,000 deduction for private pension if you take the Bailey deduction, but I suggest you check that.

Yes, you can.

If your pension is exempt from NC tax (Bailey settlement) then you would not owe any NC tax, right? Perhaps I am misunderstanding your point on this?

My federal taxable income is the starting point for computing state taxable income. Federal taxable income does not include the federally-tax exempt portion of Bailey pension (accruing from after-tax premiums applied). But when the Bailey pension is subtracted from state taxable income, it subtracts the full amount of the pension (since that is what is listed on "state distribution" box on 1099-R), not just the federally-taxable amount. So my state taxable income is too low by the federally-tax exempt amount of the pension; put another way, the federally-tax exempt amount is deducted twice. It amount to underpaying my state tax by about $15 each year. Of course, there are thousands of North Carolinians receiving Bailey payment; but probably the vast majority of them do not have any after-tax money involved.