PA retirement help please

[joanmcq]

Client has 1099-R with code 2 in box 7. Has an amount for state distribution: $38000. It is from a defined benefit plan from which he retired after reaching the requistite years of service. He is not yet 59.5. Full retirement age under the plan is 65 (per client). Is it taxable in PA? because per the 1099-R, it seems to be since there is an amount in the state distribution box. Per the instructions to the PA 40, the defining factor seems to be qualifying for retirement. It seems he has, since he is drawing his pension, even if full retirement age is not until 65.

[bigdadder]

Client has 1099-R with code 2 in box 7. Has an amount for state distribution: $38000. It is from a defined benefit plan from which he retired after reaching the requistite years of service. He is not yet 59.5. Full retirement age under the plan is 65 (per client). Is it taxable in PA? because per the 1099-R, it seems to be since there is an amount in the state distribution box. Per the instructions to the PA 40, the defining factor seems to be qualifying for retirement. It seems he has, since he is drawing his pension, even if full retirement age is not until 65.

[bigdadder]

The key is weather or not the plan is an eligible plan for PA. If it is an eligible plan, then

the code 2 makes it non-taxable for PA. If it is not an eligible plan your client should use the cost recovery

system to determine taxable amount.

[Robin]

Joan,

Maybe this will help you:

February/March 2007, No. 126

Update On Non-Qualified Deferred Compensation

The Department of Revenue, in a previous PA Tax Update article (April/May 2006, No. 120), provided guidance to employers and taxpayers with respect to deferrals and distributions from Nonqualified Deferred Compensation Plans. The employer requirements included providing plan participants with a letter stating the amount of elective deferrals previously included in PA taxable compensation on a year-by-year basis and new coding for W-2s beginning in 2006 to indicate the certain attributes with respect to the amounts of deferrals and distributions. Due to the IRS extension of their coding requirements for Box 12 of the W-2, the Department of Revenue advised employers that their requirements with respect to the new coding for Box 14 of the W-2s were suspended for tax year 2006. Employers were further advised that, even though they did not need to include the information on the W-2, they would still need to be able to provide the amounts of current year elective deferrals or current year distributions that may have been previously included in PA taxable income.

Taxpayers who do not have the information included on their W-2 with respect to deferrals or previously taxed distributions should complete and include with their PA-40 the new PA Schedule W-2 RW, Reconciliation Worksheet to provide the Department of Revenue with the information missing from the W-2s. Taxpayers and tax preparation professionals should include this new worksheet with the return at the time of filing to avoid delays in receiving any refunds they might be due. Returns received without the new worksheet will be put in a hold status until the worksheet is requested and received from the taxpayer.It is suggested that this new worksheet be completed and included with a PA-40 return any time the Medicare Wages on a W-2 do not match the Pennsylvania Wages on a W-2.

Content Last Modified on 4/2/2007 5:14:14 AM