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How to enter in Lacerte so annuity payment remains taxable to Illinois?

Paul65
Level 2
 
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13 Replies 13
garman22
Level 12
Level 12

I use PS but shouldn't the 1099-R have code 7D on it?

Paul65
Level 2

I enter 7 and D and it is still subtracted out for Illinois.

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garman22
Level 12
Level 12

Thats weird. It "could" be a bug in Lacerte. I've done a few in ProSeries and had no issues. 

@IntuitAustin Dont know if you service Lacerte. 

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maughact
Level 3

I called Illinois Department of Revenue on several occasions about this issue.  According to everyone I spoke with, anything on IRA or pension annuity lines on the federal tax return are subtracted on the state tax return including the non-qualified annuities.  Again, I called several times and they each gave me that exact answer.

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garman22
Level 12
Level 12

The IDOR employees you spoke to are wrong. Google search "Illinois non qualified annuities". I think its a Lacerte bug. I prepared a return with a 1099-R 2D and I just confirmed a 7D and both included in Illinois income. 

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maughact
Level 3

Did you prepare it in the Lacerte program?  Why would Lacerte not treat it correctly?  Lacerte has never not subtracted it on the Illinois return.  Why are they not following the state tax laws if it's truly not deductible?  Luckily I don't have many clients with the D code, none this year so far.  I would like to get a definitive answer as to why Lacerte is subtracting it?  There are thousands of tax returns being prepared in Lacerte in Illinois.  I'm surprised I haven't heard more about this issue.  Seems like a major software error.

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garman22
Level 12
Level 12

@maughact wrote:

Did you prepare it in the Lacerte program?  Why would Lacerte not treat it correctly?  Lacerte has never not subtracted it on the Illinois return.  Why are they not following the state tax laws if it's truly not deductible?  Luckily I don't have many clients with the D code, none this year so far.  I would like to get a definitive answer as to why Lacerte is subtracting it?  There are thousands of tax returns being prepared in Lacerte in Illinois.  I'm surprised I haven't heard more about this issue.  Seems like a major software error.


No, I use ProSeries. I honestly dont know why Lacerte would not treat it correctly. In ProSeries if you enter code 7D, it does not subtract this dollar amount on Illinois. We can see on a smart worksheet what will subtract and what does not...................I will look for a few links to provide. 

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garman22
Level 12
Level 12

There continues to be uncertainty concerning the tax treatment of earnings distributed from a non-qualified individual annuity.  This ambiguity extends to taxpayers, tax preparers, Illinois Department of Revenue (IDOR) representatives, and tax software companies.  The non-qualified individual annuity discussed here is a tax-deferred-earnings plan purchased with after-tax dollars by an individual directly from an insurance company.  It is not a deferred compensation or employer-based plan. 
  
Section 203(a)(2)(F) of the Illinois Income Tax Act (IITA) defines the eligible subtraction of retirement income from AGI  on the Illinois Form 1040 as follows:

An amount equal to all amounts included in such total pursuant to the provisions of Sections 402(a), 402(c), 403(a), 403(b), 406(a), 407(a), and 408 of the Internal Revenue Code, or included in such total as distributions under the provisions of any retirement or disability plan for employees of any governmental agency or unit, or retirement payments to retired partners, which payments are excluded in computing net earnings from self employment (sic) by Section 1402 of the Internal Revenue Code and regulations adopted pursuant thereto.  

Why Non-qualified Individual Annuities Are Taxable
In a recent follow-up with IDOR’s management and legal staff, they clarified that the Internal Revenue Code provisions above refer to either qualified employer-based retirement plans or IRAs.  Income that does not fall under one of these provisions does not qualify for subtraction.  Non-qualified individual annuities are not eligible while annuities created within qualified plans (e.g. 403(b), IRA, etc.) are eligible for subtraction. 

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garman22
Level 12
Level 12

The one I posted deals specifically with a section of code Illinois. I once had to research this and came across this. Its been awhile but go ahead and read and then research the code itself. 

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maughact
Level 3

So does anyone know how to enter this correctly in Lacerte?  I called them today and they are researching it and haven't got back to me.  I just so happen to have a client today with code 4D.

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delreassoc
Level 1

Has this problem ever been addressed and how do you enter this transaction?  Is it an addback as other to the Illinois Modifications?

 

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maughact
Level 3

I add it back under modifications.  Not sure why Lacerte hasn't addressed this issue.  Non-qualified annuities are taxable in Illinois.

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delreassoc
Level 1

Under Other is the only spot I found.  Thanks

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