PA RETIREMENT INCOME EXEMPTION

[Max W]

PA does not tax retirement income if the person is retired.

Retired client received 1099R with dist code 2.

It also shows a state distribution, the same amount as fed.

 

Does anyone know if this income is exempt from state of PA tax?

 

TIA

[Yardley CPA]

From the Commonwealth's Website:

 

Is retirement or pension income subject to state and local taxes?

As long as you retire and receive distributions from a PA qualified pension plan by either meeting years service or age requirement in the plan, your retirement income is not taxable for state purposes.

 

If it is an early distribution as the number 2 distribution code indicates it would be taxable on the PA return.

[jklcpa]

PA does not tax retirement income if the person is retired.

Retired client received 1099R with dist code 2.

It also shows a state distribution, the same amount as fed.

 

Does anyone know if this income is exempt from state of PA tax?

 

TIA

 

 

Please see pages 11 & 12 of the PA-40 instructions.  The first is about how PA taxes pensions and if it is from an eligible plan, and the second page specifically addresses those early distributions that are taxable, and the requirements for when those are not taxable.

 

 

[rfassett]

If he has basis in the plan for PA purposes then it would likely not be taxable.  PA does not exclude contributions to retirement plans like FED does.  Anything that would have shown up in box 12 of W-2 would lead to the taxpayer having basis.  So everything above is correct and as is true in most areas of taxation, the answer to your question is "it depends".

[Max W]

If he has basis in the plan for PA purposes then it would likely not be taxable.  PA does not exclude contributions to retirement plans like FED does.  Anything that would have shown up in box 12 of W-2 would lead to the taxpayer having basis.  So everything above is correct and as is true in most areas of taxation, the answer to your question is "it depends".

"IT DEPENDS"

That's the problem. I've been going through this with her husband, who were both teachers, for the last 3 years. They both receive a state teachers retirement distribution and hers has a code 2 as well as code 2 on a commercial plan. .The commercial 1099R has the State distribution, but the state form does not.  It does not even have any boxes after Box 7.  So, code 2 with the state plan is ok, but the other falls into the "it depends" category.

 

If I understand this correctly, the basis which would be her contributions would be exempt from the tax.Any matching contributions or gains, in the commercial plan would be taxed.

[jklcpa]

Maybe these will help some, defines what an eligible plan for PA purposes is:

 

from the PICPA:  http://www.picpa.org/ask/public/View.aspx?id=251&ReturnUrl=Search.aspx%3fi%3d9%26k%3d%26c%3d1

 

from the PA Dept of Revenue's site, the PA PIT Guide, see chapter 7, section XVI starting on page 92 (has the same criteria as the PICPA page):  http://www.revenue.pa.gov/FormsandPublications/PAPersonalIncomeTaxGuide/Documents/pitguide_chapter_07.pdf