MA PY retirement income question

[joanmcq]

TP filed own return & got MA notice. they are retired and moved from PA to MA in June 2006. Most income was from dividends, SSI and an IRA distribution. The 1099-R has part of the distribution ($60,000 which was taken out when they lived in PA) coded with no state, and the rest, $12,000 coded as MA income and has tax withheld because none of the contributions were subject to MA tax (because they were subject to PA tax) when made. Don't ask me why they elected to move and subject the bulk of their retirement income to tax!

So the question is, is the full amount apportioned by the percentage of time spent in MA to compute the taxable amount, or is it all subject to MA tax, or only the $12,000 that was taken out while a MA resident?

[Kram BergGold]

Answer

Only the 12k received on or after MA residency started is taxable by MA. From my reading the ball is in your court to prove this. I would get a letter from the holder of the retirement account stating when the distributions were made or send MA statements the client has that verify this. MA challenges very little but when they do you need absolute proof.

[FEDUKE404]

You may have to override the Form 1099 amounts

I tend to agree with Kram BergGold, especially with "the ball is in your court" comment.

Getting the correct state information on retirement Forms 1099-R can frequently be a challenge. You may have to prepare the two part-year state income amounts based on the facts and not necessarily on the state numbers shown on the tax documents. This assumes, of course, that the underlying federal information is correct.

I am a bit concerned since your facts would seem to indicate approximately 5/12 of total to PA and 7/12 of total to MA. (It could even be close to a 50:50 split?) Showing $60k for one state and $12k for the other state with a roughly mid-year move does not sound quite logical. (There could, of course, be other facts not stated.)

As a recent example, a client had moved from state of government retirement income to another state. The "old" state continued to show the income as their own on Form 1099-R, and the client continues to (properly) show the income on the return of the new state only. Some leftover state withholding from the old state required the filing of a 2006 non-resident tax return with ZERO income from the old state (to get the money back), in spite of what was actually shown on the Form 1099-R. An explanatory letter was attached to the tax return for the "old" state. Oh yes: retirement in "old" state was entirely tax free and same retirement in "new" state is almost entirely taxable (person is a "young" retiree).

FE

[joanmcq]

The amounts differ because they withdrew the $60,000 from one fund first, and the $12,000 from another after they had moved (it was an IRA, not a pension). I guess all I would need would be the statements showing the withdrawals then. Thanks everyone!