The FTB stated that the instructions for Schedule CA (540 and 540NR), California Adjustments, contain the wrong phaseout amounts on line 32 (IRA Deduction) for taxpayers using the married filing joint and qualifying widow(er) filing statuses. In turn, most, if not all, tax software is also using the incorrect thresholds. The FTB’s instructions correctly state the phaseout range for other filing statuses.

The correct phaseout for California married filing joint and qualifying widow(er) filers is $80,000 - $100,000, not $75,000 - $85,000 as published (The federal phaseout is $83,000 - $103,000). This means that a taxpayer who is covered by an employer retirement plan and files a joint return gets no IRA deduction for California purposes if his modified AGI is $100,000 or more, not $85,000 or more as published.

The FTB notified tax software developers of this error on February 22, 2008, so be sure to check for updates to your tax software. Note that there is generally no override available for the phaseout range or the IRA deduction in tax software. If you have filed returns for clients who are subject to IRA phase outs for California, you may need to amend those returns to reflect the correct IRA deduction.

Please note: Spidell’s fall seminar material contained the incorrect amounts on page II-11. We have corrected these references in our online subscription service, Spidell’s Online Research Package.