I'm curious about how many PRC users are scrutinizing the reported state income tax.
Are users comparing the PRC reported state tax (including local tax) for the current year (e.g. 2024) vs actual tax that would be owed (if your actual income parameters matched the income resulting in the PRC scenario)?
I've found PRC to have very accurate results for Federal taxes, but there may be some rather large errors in state taxes for PRC users in Maryland -- depending on whether your retired or not, or whether you are making withdrawals from a traditional IRA or a traditional 401k.
They are not correct for GA, where they exempt a large chunk of retirement income from state taxes. From age 62-64, they exempt the first $35k PER PERSON from taxation. Age 65 and up, they exempt the first $65k PER PERSON - so a couple where both are 65+ will have the first $130k exempted from state taxes. Retirement income includes pensions & annuities, interest & dividends, net income from rental property, capital gains, royalties, & up to $5k of earned income. All SS is fully exempt from taxation in GA. I have brought this to Charlie's attention. State taxation is more difficult for them to handle due to differences in 50 states and they are constantly changing.
Needless to say, the taxes reported by Pralana are much higher than reality. I will treat it as an extra margin of error until they fix it.
Does GA have any exclusions for the retirement exemption -- when it is a traditional IRA?
MD allows a pension exclusion of up to $39,500 per individual for age 65+ (for year 2024).
However, traditional IRA's do not qualify (but traditional 401k's do qualify).
The pension exclusion is reduced by any social security benefits.
For MD taxes, its an incentive to keep retirement funds in the 401k account for those in retirement, but delaying social security benefits.
Otherwise, all of a traditional IRA withdrawal is fully taxable.
Does GA have any exclusions for the retirement exemption -- when it is a traditional IRA?
Georgia’s retirement income exclusion lets eligible taxpayers—generally those age 62 or older (or who qualify due to disability or as surviving spouses)—exclude a certain amount of their retirement income from state taxable income (up to $65,000 for joint filers; the limit is lower for single filers). However, not all retirement income qualifies for this exclusion. In other words, there are “exclusions” in that some types of retirement income aren’t eligible to be counted toward that $65,000 exclusion.
Key Points
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Eligible Income:
The exclusion is meant for income from qualified retirement sources such as pensions, annuities, and IRA or 401(k) distributions that are taxable at the state level. -
Non-Eligible or “Excluded” Items:
- Nonqualified Deferred Compensation: Distributions from nonqualified deferred compensation plans generally do not qualify.
- Rollovers: Amounts that are merely rollovers (i.e., money transferred directly from one retirement account to another) aren’t considered taxable retirement income and thus are not included in the calculation for the exclusion.
- Roth IRA Distributions: Because qualified Roth IRA distributions are already tax-free federally, they typically aren’t counted as taxable retirement income in Georgia either.
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Impact on the $65,000 Limit:
Only income that meets the state’s definition of “taxable retirement income” is eligible for the exclusion. If part of your retirement income comes from sources that are excluded as noted above, those amounts won’t count toward the $65,000 maximum exclusion—even if they might be received in the same year.
I'll post this for other's benefit:
This pertains to one finding for Oregon (OR) state taxes that results in higher Pralana Online state tax calculations.
I draw a military pension that was earned over 20+ years of service. In the distant past, OR exempted Military Pensions, but in 1991 they began taxing them. There is a calculation based on portion of service earlier and later than a specific date in 1991. Then the simple fraction of excluded pension to total pension reduces total reportable tax on that income. An easy calculation, but not one covered by Pralana Online.
What I am currently doing to adjust Pralana's results is to declare that I live in another state that has similar tax treatment for the categories of income we have (I chose MA!) but still results in an UNDER estimate of state taxes. Then, I have added a Misc Expense to broadly add back the delta in the tax bill in the years in question. It's not precise, but gets me close and is "good enough."
I considered a number of approaches and this seemed the best. Certainly curious if someone else sees a big flaw - but mostly my post is to help anyone else in a similar position. I don't think there are many of us. BTW: MA may not be the right answer for others, but in the tax categories that I needed, it was.
Many thanks to Charlie Stone, who helped me understand PO's limitation when I noticed it and has now added very helpful State Tax treatment data that enabled me to arrive at this "solution."
