AICPA Supports Bill on Non-Resident Retirement Income

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The American Institute of CPAs has supported a House bill that would ensure that certain deferred compensation plans would not be eligible for non-resident state income tax.

The AICPA said that it opposes the position that states can tax the nonqualified retirement benefits paid by a partnership to its retired non-resident partners.

States are prohibited from taxing the retirement income of non-residents under Public Law 104-95, passed in 1996. “We supported Public Law 104-95 based on the extreme difficulty of administering a system that would consistently, fairly and efficiently allocate retirement income based on the state in which it was earned,” the AICPA said in a Dec. 13 written statement to the House Judiciary Subcommittee on Commercial and Administrative Law. “Our original concerns about administrative burden are no less true today for partners than they were ten years ago. And from a tax policy perspective, equity would dictate the consistent treatment of employees and partners.”

The AICPA said that before the law was enacted, taxpayers who worked in different states before they retired faced a “nightmarish burden” trying to track retirement income to each state. The new bill, the AICPA said, clarifies the original intent of Public Law 104-95 and addresses the same concerns. Passing the law would simplify the system.

The bill would ease compliance, use concepts and definitions that are consistent in the tax code and be more fair. “Public Law 104-95 was intended to apply to all retirees and not just to 'employees.' Indeed, over the last 10 years, federal pension law has gradually moved to eliminate the distinctions, e.g., with regard to contributions and withdrawals, between the coverage of employees and the self-employed,” the statement said.

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