NJ Nonresident pension exclusion issue

[ejdtaxman]

A quick summary: 

Taxpayers are MFJ NY residents, spouse sold a NJ property in 2022 and is reporting sale on NJ 1040NR. Spouse also has a NY pension of 34k. Both taxpayer and spouse are over 62 and total income is less than 100k. 

As nonresidents of NJ, the pension income should be non-taxable and end the issue, but Proseries is auto-filling line 22 and line 28a-c as though the pension is taxable, and then generating both the pension and other retirement exclusions, based on the factors above, which then cancels out not only her pension but all other income, i.e. her capital gain on the property sale, since that was only 20k. 

I've tried marking the pension "not taxable" on the pension worksheet, but the issue is the "other retirement exclusion " still remains, even though there is no pension to tax. 

I could just override and delete that, but I'd prefer to do it correctly since I will e-file this once e-filing opens back up, and the override will cause a bunch of issues with that. How do I stop Proseries from entering the pension and the exclusions? Is there even a way? 

[Skylane]

The NJ allocation worksheet should only have your 20K CG on line 5a

I used 40K 1099R income for each TP and SP and 20K CG.  Made them both 64YO

NJ 1040 Line 27 Col A - 100k   Col B 20k

Line 28b  Col A 20K Col B 20K 

Line 29 Gross Income is 0

When you set up the return on the (federal info worksheet) be sure to complete Part XI  check NR State files and enter NJ NR...  Below that is a quick zoom to the nonresident state allocation worksheet. 

Edit:  btw,  check the closing statement carefully... NJ has a nasty habit of withholding tax at closing... especially for non residents... 

[ejdtaxman]

First, I'll note that I had already marked NJ as non-resident but oddly, no NR state allocation worksheet shows up. This happens sometimes and I'm never sure why. 

However, on the NJ allocation worksheet I had marked only the NJ 20k CG as NJ source income. Nothing else is so marked. See screenshot for illustration. However, note that the line for "pension and IRA distributions" directs you to see IRA/pension worksheet. The pension auto-populates on this worksheet, but there is no way to exclude it as out of state income. You can mark it not taxable, but this just changes line 28a to 0 and gives the maximum of 100k exclusion on 28b. Otherwise she gets the full pension excluded on 28a and the remainder of the 100k exclusion is taken on 28b. This is incorrect either way, as a non resident, she isn't entitled to any exclusion whatsoever. 

Also, I notice above you put 64 y/o, I may not have made this clear, the spouse pension recipient is over 65. So because their income is under the threshold, she'd be eligible for both exclusions were they residents, the issue is they are not. 

I am also uploading a photo of the relevant portion of 1040NR to illustrate the issue again, so we are on the same page. 

Finally, thanks for mentioning the NR withholding tax, I'm well aware of it - that's the only reason this return was filed! 

Thanks again for your feedback. 

[ejdtaxman]

Just an addendum to the above, please ignore the part about spouse being over 65, I forgot the age minimum is 62. I already noted both taxpayer and spouse are over 62, so I see you were factoring that in. ok, carry on! 

[Skylane]

Sorry for the delay... I was away last couple of weeks.   the NR worksheet is correct that only NJ source income is the CG.   Line 29 income is 0.  You should be good to go.