Taking AOTC for college expense funded by a 529 plan, some 529 earnings are taxable for Federal but none should be for NJ. It's taxing it all in NJ. Not correct. AnyFix?

Forum|Forum|5 years ago
February 19, 2021
1 reply
23 views

The software is incorrectly taxing all of the earnings as interest for NJ purposes - this is not correct. System glitch? Programming error? Don't see a way to override this.

ProConnect Tax

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itonewbie

Level 15

Tried this myself. Looks like it's a bug. Rather than excluding from the NJ gross income taxable earnings that were used to pay for qualified higher education expenses credited for AOTC, ProConnect Tax flows through the taxable earnings from the federal return and treats that as taxable interest on the NJ return.

Since NJ Rev. Stat. §54A:6-25 excludes 529 plan qualified distributions from NJ gross income and NJ does not conform to IRC §25A for AOTC, qualified higher education expenses taken into account for AOTC and disallowed under IRC §529(c)(3)(B)(v) should still qualify for exclusion from NJ gross income.

In the meantime, you can override NJ taxable interest under State & Local > Income > NJ Income, on the line for New Jersey taxable interest [Override].

@IntuitBettyJo Could you please have the developers take a look and give us an update? Thanks!

---------------------------------------------------------------------------------Still an AllStar

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