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Why is MT Form 2, Itemized Deductions Schedule, line 4a amount incorrect?

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Why is MT Form 2, Itemized Deductions Schedule, line 4a amount incorrect?

Montana Form 2, Itemized Deductions Schedule, line 4a is reporting the amount from Form 1040, line 11a, instead of Form 1040, line 16 as expected. Form 1040, line 11a reports the current year federal income tax; line 16 reports all federal income tax withheld from Forms W-2 and 1099.

ProConnect Tax limits the MT deduction of federal income tax withheld and/or paid to the federal tax amount calculated on the current year 1040. When this limitation is applied to a return, you'll see the following suggestion:

  • Federal income tax withheld and Federal estimated tax payments are being limited to federal taxes paid on the current year federal tax form. On Married Filing Separate Combined returns, the Federal tax used in the limitation is allocated between the spouses based upon their proportional share of Federal Adjusted Gross Income. Ref#51961

Refer to the 2020 Montana Form 2 Individual Income Tax Instructions for more information about line 4a on the Itemized Deductions Schedule.

Two override inputs are available in ProConnect Tax.

Follow these steps to enter override amounts:

  1. Go to the Input Return tab.
  2. From the left of the screen, select Deductions and choose Itemized Deductions (Sch A).
  3. Scroll down to the Montana Itemized Deductions section.
  4. Enter any applicable override amounts in the following fields:
    • Reduction to federal tax withheld [Override]
      • Amounts entered here will override the program's calculation of the reduction to federal tax withheld on MT Form 2, Itemized Deductions Schedule, and will adjust the amount of federal income tax withheld that prints on line 4a of the schedule.
    • Reduction to federal estimated tax payments in 2018 [Override]
      • Amounts entered here will override the program's calculation of the reduction to federal estimated tax payments on MT Form 2, Itemized Deductions Schedule, and will adjust= the amount of federal estimated tax payments that prints on line 4b of the schedule.

On March 13, 2019, the Montana Department of Revenue made the following announcement:

"Several tax practitioners contacted us about the itemized deduction for federal income taxes paid. The Form 2 instructions limit the amount of the itemized deduction to the amount of federal income taxes assessed on the 2018 federal Form 1040.

We call this the direct limitation method.

The tax practitioners were concerned they had already filed returns deducting federal income taxes paid without this limitation.

Our intention was to offer this direct limitation method as an alternative to the recovery method which requires a calculation spread over two tax years.

Both the direct limitation method or the recovery method are correct. Montana tax returns already filed do not need to be amended.

Please remember: The recovery method may require an addition to income in the next year."

Read the full announcement here.

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