New York Taxability of Virginia pension

[Greta]

Client &  spouse who receive pensions from Virginia Retirement System (VRS) move to NY. Husband gets 1099-R for 35K and receives a 20K deduction in NY tax return. Somehow wife's 1099-R from VRS ($5500) is taxed in full. I suspect I'm not doing NY return correctly, I'm mostly knowledgeable about Virginia.

[BobKamman]

What is the Box 7 code on the wife's 1099R?

Married taxpayers who both receive pension income are each entitled to
a maximum pension and annuity income exclusion of $20,000 whether they
file jointly or separately. However, you cannot claim any unused portion of
your spouse’s exclusion. If you receive your own pension income and your
deceased spouse’s pension income, you are entitled to a maximum pension
and annuity exclusion of $20,000 each year.

Qualified pension and annuity income does not include:
• Distributions received from a nongovernment pension plan as a
nonemployee spouse in accordance with a court-issued qualified
domestic relations order (QDRO) or in accordance with a domestic
relations order (DRO) issued by a New York court.
• Distributions received as a result of an annuity contract purchased
with your own funds from an insurance company or other financial
institution. The payments are attributable to premium payments made
by you, from your own funds, and are not attributable to personal
services performed.

https://www.tax.ny.gov/pdf/publications/income/pub36.pdf

[Camp1040]

Is the spouse older than 59 1/2?

[Greta]

Both husband and wife receive pensions from the same Virginia Retirement System, both coded 7 in Box 7. Do I have to enter anything in the NY software to get the 20K deduction for each spouse or does it do it automatically? The 20K was in fact subtracted from the husband's 1099R ($35,000) but not the wife's ($5500). Other than social security benefits, it was their only income, I prorated everything for the 9 months they spent in NY in a part-year return. It doesn't matter too much, since the tax appears to be zero, but I want to do it correctly. Thank you for the link, I will read it now.

[sjrcpa]

Is the spouse's 1099-R coded to Spouse?

[Greta]

Yes, I thought of that also, it is.

[Camp1040]

Go back to the federal PY allocation sheet and double check amounts, make sure source state is not checked but amounts allocated. 

[Greta]

I also found in the NY software "Pensions/Annuities/IRAs Worksheet" Part I - Calculation of Taxable Income Amounts. In the right corner is a TP/SP entry, perhaps I should enter SP for spouse. (The 1099R already indicated it was Spouse's pension.)

If it's a pension from the Virginia Retirement System (VRS), does that qualify as a governmental exclusion? That is, Virginia State is governmental. Check that box?

Then I tried a version where they are full time NY residents as they will be next year. The spouse's pension income ($5500) was deducted in full on line 26, and husband's deduction of $20,000 was deducted on line 29. They both retired from VRS. What is the difference between line 26 and line 29?

[sjrcpa]

So they are part year NY residents for 2020? She'll only get the pension subtraction to the extent her pension was included in NY income.

For him, sounds like at least $20K of the $35K pension was sourced to NY.

[Camp1040 · Accepted solution]

You should not have a entry online 26. That line is for New York state government or federal government employee pensions.

If the federal information worksheet part-year allocation is filled out correctly the numbers should flow. Check the 1099-R to see if the issuer split the state amount of resident state, usually they do that when you notify the insurer that you're moving to another state.

[Camp1040]

Spouse should have some exclusion as a part year resident, but OP is stating it is all being taxed, I still think it is an input error along the line somewhere!

[Greta]

Right! I did not allocate PY amounts in the federal return, but the diagnostic Error button indeed directed me there. I am always confused about PY returns - I manually entered PY allocations in Virginia and PY New York, but why a third time on the federal?

[Greta]

My clients never seem to inform Virginia Retirement System that they moved out of Virginia (in mid-March 2020) so the 1099-R only lists Virginia for income and withholding. But NY should nonetheless give the husband his 20K deduction and a partial one for the spouse's $5500 retirement income?

[Camp1040]

If you do the federal worksheet PY allocation before every opening the state return it all should flow to each state correctly. If the 1099-R contains state info that is contradictory to the federal PY allocation, then some manual entries may be necessary.

Good luck.

[sjrcpa]

I use Lacerte. There we do the state allocation as part of initial data entry and it will flow to the states.

[Greta]

Thank you all. It seems my original error of not entering PY allocations on the federal portion is the source of my troubles. I've been doing PY returns incorrectly for many years, it seems.