Non-Qualified Plans

[Victor Roberts]

I receive a small supplemental pension each month from a former
employer. The amount is reported in Boxes 1 and 11 (Nonqualified
Plans) of Form W-2. The amount in Box 11 is the same as in Box 1.

There is a small amount of Federal Income tax withheld. The form is
otherwise blank except for names, addresses, Tax ID numbers and state
information.

After I enter this data from this W-2 into H&R Block I get two more
questions about Non-qualified income.

The first comes from a list of seven items under

Do Any of These Special Situations Apply?

One option is:

This is a nonqualified plan or nongovernmental Section 457(b) plan
distribution.

The second, on the next screen is

Tell Us About Your Box 11 Amount.

Is this from a nonqualified plan or nongovernmental Section 457(b)
plan? Yes or No?

So, why two more questions after the amount has been entered into Box
11?

The questions seem to imply that ALL non-qualified plans meet these
requirements, but if that were the case, why have the two additional
questions?

Also, if I answer YES to these questions, my NYS tax increases. The
amount from Box 11, which is already included in my Federal Wages gets
added again at line 18 of my IT-201, increasing my NYS taxes. This
last issue seems to be an N&R Block error,

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[Victor Roberts]

I just created a new return in H&R Block to test this issue. The
taxpayer is John Doe and he has only a single source of income, a W-2
that has $20,000 in Boxes 1 & 11.

If I check the two boxes I discussed in my earlier note for
non-qualified income, John Doe is taxed on $40,000 income on his NYS
return! (The Federal return is correct.)

I called H&R Block tech support and was disconnected twice during the
call, and they did not call back. I was told by the second agent that
they are a call-in only center and have no ability to call out.

I'll try again tomorrow, which may be less busy.

[Victor Roberts]

On Mon, 20 Feb 2023 17:36:31 EST, Victor Roberts

I searched through the instructions for IT-201, and IT-225, which
discuss New York Additions and Subtractions. I did not find any
discussion of income from non-qualified plans.

I also was able to finally speak with someone from H&R Block support,
after two earlier attempts where we were disconnected in
mid-discussion.

This person said, essentially, "If checking the boxes gives the wrong
NYS income, then don't check the boxes."

I suggested perhaps the program or the instructions for the program
should be fixed so all the other NYS taxpayers using the program don't
pay tax on double their income from a non-qualified plan. That didn't
seem to be a high priority.

I certainly do not have extensive tax law knowledge, but it seems that
under no circumstances should a tax prep program turn $20K of income
from a non-qualified plan on a Federal return to $40K for that same
non-qualified plan on the NYS return.

One more oddity. The income from the non-qualified plan is added on
Line 16 of IT-201, which is labeled Other Income. There is a box on
that line which says "Identify." The tax program inserts "SEE
ATTACHED," but there is no other form attached to the IT-201 that
explains the amount being added on that line.

[Victor Roberts]

On Mon, 20 Feb 2023 21:33:07 EST, Victor Roberts

Here is an update on the H&R Block issue with income from a
Non-Qualified Plan on the New York State return.

The last announced update was on March 3, and that was for the Federal
return only. That update did not correct the error in the NYS return.
At that time H&R Block said that no updates were planned for the NYS
return.

This morning I checked again for updates, and found an unannounced
update for the NYS return, which I installed. This latest update
fixed the over taxing issue, but not, as far as I can determine, in
the right way.

Using my "John Doe" test return, that has only Non-Qualified Income, I
see that H&R Block now removes the Non-Qualified Plan income from Line
1 of Form IT-201 and leaves it in Line 16, Other Income. The total
income and tax are now correct, but this method violates the Form
IT-201 Instructions. Those instructions state: "The amount entered on
line 1 (wages, salaries, tips, etc.) should be the same as the amount
reported on federal Form 1040, line 1z,"

Since the Non-Qualified Plan income is included on Line 1z of my Form
1040, it seems it should also be included on Line 1 of the Form
IT-201.

I checked my NYS returns from previous years, filed both with H&R
Block and TaxAct, and in none of those years was the Non-Qualified
Plan income removed from Line 1 and added back on Line 16 of the
IT-201.

For what it's worth, I e-filed both the Federal and NYS returns on
February 21. I left the two question boxed for Non qualified Plan
income unchecked, as I described above, to avoid the over taxation
issue. My federal return was accepted within minutes and the NYS
return in about 24 hours. My Federal refund was deposited 7 days
later. I am still waiting for the NYS return to be processed.