VA taxation of qualified distribution received in 2020, reported in 2021

Forum|Forum|4 years ago
March 27, 2022
1 reply
12 views

Taxpayer was a MD resident when he took an IRA distribution in 2020. He elected to take the Covid exception and spread the income over 3 years. He paid federal and MD tax on 1/3 of the distribution in 2020.

He is a full year resident of VA for 2021. The ProSeries program carries the income for year 2 of the distribution to VA return. Should client be taxed on income actually received when he was a non-resident?

Should he file a non-resident Maryland return and pay tax on the second installment of the distribution and exclude it from VA?

Thanks for any help!

ProSeries Basic

This topic has been closed for replies.

qbteachmt

Level 15

"Should he file a non-resident Maryland return and pay tax on the second installment of the distribution and exclude it from VA?"

Have you looked into the requirements? Some States want you to list everything, then they give a credit back for tax paid to other States. Some States tax everything for the resident, no matter where it is from. Some States will tax retirement not originating in their State. Some States have minimum exclusions. Some don't.

You have to look up what applies for your taxpayer.

Don't yell at us; we're volunteers

N

NancyTAuthor

Level 3

I have researched both states, exhaustively. Neither state addresses directly the resident/nonresident issue. VA does not allow retirement income to be subtracted from the federal amount unless it is being taxed by another state. Maryland as no provision for adding retirement income for a nonresident.
Kind of sounds like I answered my own question there, I was just hoping a VA tax pro would have some input. Logic makes me think it is unreasonable for a VA resident de taxed on income received as a nonresident.
Thanks,

Nancy Tomlinson EA

rbynaker

Level 13

I'm in VA and I don't know the answer. (Note to self: I'm so happy I don't have any clients who did this 3-year spread!)

I would think this would still be MD source income since it was MD source when the actual transaction occurred and the IRC just spreads the taxation over three years. But I haven't seen anything from either side of the Potomac that would clarify this.

@sjrcpa may know to MD tax ramifications.

Rick

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