Non-Qualified Plans

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.

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.

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.