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    CA 401k Penalty?

    Part year CA resident (33 days beginning of year) took early 401k distribution after becoming NY resident. Even though this is shown as non CA income, software is calculating an early withdrawal penalty on the CA NR/PY return. Is this correct? Seems to me it should not be subject to any CA penalty as it was taken well after becoming a NY resident. Can't find anything in the CA form 3805P instructions regarding this.
    Last edited by Justataxguy; 03-02-2015, 09:45 AM.

    #2
    The 2½% penalty would only apply to the amount subject to California tax. That's the amount, if any, that appears on line 16, column E of Schedule CA (540NR). You can find a reference to this in the instructions for California form 3805P, near the bottom of page 3, under the caption "Long Form 540NR Filers."
    Roland Slugg
    "I do what I can."

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      #3
      Originally posted by Roland Slugg View Post
      The 2½% penalty would only apply to the amount subject to California tax. That's the amount, if any, that appears on line 16, column E of Schedule CA (540NR). You can find a reference to this in the instructions for California form 3805P, near the bottom of page 3, under the caption "Long Form 540NR Filers."
      So does that mean I subtract it in column B so it doesn't transfer to column D to show up as "Total Amounts Using CA Law As If You Were a CA Resident"? I'm not finding any other way around it.

      Comment


        #4
        No. Columns B and C on California Schedules CA and CA(NR) are used to adjust the federal amounts, in column A, to the California amounts, for column D, based on California/federal differences in their respective tax laws. Most lines will normally have no entries in columns B or C. Then the amounts in column D that are taxable on a particular nonresident's (or part-year resident's) California return, form 540NR, are entered in column E of Schedule CA(NR). In your client's case his 401(k) distribution should appear on Schedule CA(NR) on line 16, columns A and D, but not in column E, because it is not taxable on his California return. Enter a zero on line 16, column E, for that income item, and do the same for every other line on that schedule if the income (or deduction) is not taxed by California because it was earned/received after he became a nonresident of California.

        I recommend that you read the instructions for California Schedule CA(NR).
        Roland Slugg
        "I do what I can."

        Comment


          #5
          Originally posted by Roland Slugg View Post
          I recommend that you read the instructions for California Schedule CA(NR).
          I have been over and over and over the instructions for all the pertinent forms and checked in CA pubs as well. They all seem pretty vague to me on PY/NR issues regarding early withdrawals. I appreciate all your help Roland.

          What is happening with my software is this - the only ways it will make it show as non-taxable is if I claim the full amount on 3805P exempt with or without any code number (there is none for NR income) or I override the calculated penalty on line 73 of the 540 NR. And I get the "Override Warning" when I do that. But I am not getting any red flags when doing my pre-filing check when claiming it exempt on the 3805P without any exception code so is it safe to assume this is the way to go? I just want it to be right.

          Comment


            #6
            Your tax prep software MUST allow you to enter a zero on any of the lines in column E of California Schedule CA(NR). Schedule CA (and CA(NR) for non/part-year residents) is really a very straightforward form. Once you grasp its fundamental purpose, a light will come on ... comic book style ... and everything will suddenly be clear to you, I'm sure. Note that column E only appears on the NR version of that schedule, not the normal version (Schedule CA) used by California residents.

            Since there is no California penalty, delete form 3805P from the return.
            Roland Slugg
            "I do what I can."

            Comment


              #7
              Originally posted by Roland Slugg View Post
              Your tax prep software MUST allow you to enter a zero on any of the lines in column E of California Schedule CA(NR). Schedule CA (and CA(NR) for non/part-year residents) is really a very straightforward form. Once you grasp its fundamental purpose, a light will come on ... comic book style ... and everything will suddenly be clear to you, I'm sure. Note that column E only appears on the NR version of that schedule, not the normal version (Schedule CA) used by California residents.

              Since there is no California penalty, delete form 3805P from the return.
              The software shows a zero in column E, but when I try to delete form 3805P, it is automatically generating a new one based on the federal 5329! So I guess this becomes a mail in return w/o the 3805P, correct? It should be my only CA return.
              Last edited by Justataxguy; 02-28-2015, 08:50 AM.

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