2010 Removal of IRA Conversion Income Limits - What about States?

[OtisMozzetti]

As we almost all know, starting in 2010 the $100,000 MAGI limit on converting traditional IRA into Roth IRA will be removed for federal tax returns. We also know that taxpayers may elect to include the income if any from the conversion equally during the following two years, 2011 and 2012, on federal returns.

What about conformity by the various states? Can the conversion be performed by those who don't meet the previous income limit? Will those who convert have to recognize all the income to the state during the year of conversion?

I can almost predict that the state of California wants all the revenue that it can get during 2010, so you know what I suspect the answer will be in California...

[DaveO]

I don't have an answer to your question but I'm curious as well. I'd guess Nebraska will follow the Fed.

It seems to me CA has some very low tax rates. I know property taxes are limited by Prop 13. Is there a similar limitation on income taxes? I only have a couple of CA returns but was doing one today. If I would have figured the state return under Nebraska rates they would have had a balaance due of a few hundred dollars. Instead, CA is sending them over $1000 back. NE rates while high, are no where near the rates of Oregon or New Jersey but are way above CA.

[AuditorTurnedGood]

MN hasn't

conformed to vritually any of the useful federal changes since the first G.W. administration, I would doubt they'll be on this bandwagon - especially since we have a $3B budget deficit and an executive branch who insists inflation only exists on the income side of the budget.

ATG

[bruehaus]

CA Conforms

CA conforms to the elimination of the Roth IRA income limitations for 2010. I think they also conform to the two-year income spread to 2011 & 2012 as well. (From a Spidell message board): Under R&TC 17501(b), CA preconforms to any federal amendments made to IRC 401-424. Since the AGI limit was eliminated in 2010 under IRC 408A(c)(3)(B) CA conforms.

[abctax]

I don't have an answer to your question but I'm curious as well. I'd guess Nebraska will follow the Fed.

It seems to me CA has some very low tax rates. I know property taxes are limited by Prop 13. Is there a similar limitation on income taxes? I only have a couple of CA returns but was doing one today. If I would have figured the state return under Nebraska rates they would have had a balaance due of a few hundred dollars. Instead, CA is sending them over $1000 back. NE rates while high, are no where near the rates of Oregon or New Jersey but are way above CA.

Dave - CA income tax rates are some of the highest in the land. The highest bracket for 2008 was 9.3% (it's going to be a bit higher for 2009). Prop 13 only deals with real estate taxes.
So I'm surprised your client is getting so much back from CA....CA does figure the tax on the TOTAL income, then applies the ratio of CA source income to the tax.

[S T]

Calif vs NC

You know -
I am a transplant from Calif to NC and I have several of my Calif clients that moved from Calif to NC!

Income tax wise! - I really think NC is higher than Calif, although in defense of NC, sales tax has been lower, real estate taxes are lower, and registration of vehicles is lower.

I don't believe that we can look at the Income Tax Rate of the State we live in - we have to look at "All Taxes" that are assessed to us

Sandy

[OtisMozzetti]

tax burden in different states

I don't have an answer to your question but I'm curious as well. I'd guess Nebraska will follow the Fed.

It seems to me CA has some very low tax rates. I know property taxes are limited by Prop 13. Is there a similar limitation on income taxes? I only have a couple of CA returns but was doing one today. If I would have figured the state return under Nebraska rates they would have had a balaance due of a few hundred dollars. Instead, CA is sending them over $1000 back. NE rates while high, are no where near the rates of Oregon or New Jersey but are way above CA.

It sounds to me as though Bruehaus has furnished me the answer I need, even with a reference to the Revenue & Taxation Code which I can look up to confirm the answer.

I don't know how the topic got to be the level of tax burden among the various states, including California: As I see it from many, many California tax returns, California taxes low incomes at a rather low rate and higher incomes at a very high rate. In other words, the California tax structure is highly "progressive", whatever each of us may think about that tax policy. The top rate for California is 9.55% (plus 1% surtax on incomes above $1,000,000), but the lower rates are 1.25%, 2.25%, 4.25%, etc.

I would venture a guess about the comparison that you performed...For one thing, California has for the past several years had a large credit for dependent exemption ($309 for 2008). That credit has been cut back to the regular exemption credit amount of $98 starting during 2009, less than one third what it used to be. Also, California does not tax Social Security at all, nor is unemployment compensation ever taxed.

[joanmcq]

CA rates can be high (it doesn't take too much taxable income to get to those high rates), but the key is taxable income. Since we conform to fed in a lot of ways, you can take business or rental losses against other income, which isn't allowed in say, PA, where the total tax rate is 3%. But if you are a pensioner, you aren't taxed on your pension or IRA income, whereas you are in CA. So depending on the type of income, (Railroad retirement is never taxed either) you could be in better shape in CA than in a lot of other states with 'lower' tax rates.