U.S. Obligations
Interest received on obligations of the United States, and included on your federal tax return, is exempt from Delaware tax and should be entered on Line 34. Failure to identify the payor on Federal Schedule B will result in the disallowance of the deduction. Interest received on obligations for which the United States is NOT the primary obligor or which are NOT guaranteed by the full faith and credit of the United States is not exempt from tax and may not be entered on Line 34. For a list of examples of what is exempt and not exempt visit line 34 instructions.
Pension Exclusion
Amounts received as pensions from employers (including pensions of a deceased taxpayer) may qualify for an exclusion from Delaware taxable income, subject to the limitations described below. An early distribution from an IRA or Pension fund due to emergency reasons or a separation from employment does not qualify for the pension exclusion. If the distribution code(s) listed in Box 7 of your 1099 R(s) is a 1 (one), then that amount DOES NOT qualify for the pension exclusion. Also, if you were assessed an early withdrawal penalty on Federal 1040, Line 59, that amount DOES NOT qualify for the pension exclusion.
NOTE: Each taxpayer may receive ONLY ONE exclusion, even if he or she is receiving more than one pension or other retirement distribution. Spouses who each receive pensions are entitled to one exclusion each.
Disability pension income paid by your employer is reported as wages on the federal return, until you reach the minimum retirement age. Minimum retirement age generally is the age at which you can first receive a pension or annuity if you are not disabled. Therefore, Disability pension income would not qualify for the pension exclusion.
Pension Exclusion Example: The primary taxpayer received $10,000 in pension income. The secondary taxpayer received no pension income. The taxpayers had joint bank accounts and mutual fund accounts. They earned $5,000 in interest from the bank, $1,000 in dividends and $3,000 in capital gains. These accounts would be split equally between the two taxpayers. Both taxpayers, in this example, are over 60 years old. The primary taxpayer's exclusion is $12,500 (10,000 + 2,500 + 500 + 1,500 = 14,500). The maximum exclusion for the primary taxpayer is $12,500. The secondary taxpayer's exclusion is $4,500 (2,500 + 500 + 1,500 = 4,500). The secondary taxpayer cannot include in the pension exclusion calculation the amount by which the primary taxpayer exceeded the $12,500 maximum exclusion.
Please remember to enclose the 1099R Forms and other supporting schedules to support your pension exclusion.
Delaware State Tax Refund
Delaware state tax refunds may be excluded to the extent they are included in federal adjusted gross income.
Fiduciary Adjustment
Net subtractions from fiduciary adjustments derived from income received from an estate or trust, as shown on your Federal Form K-1, Beneficiary’s Share of Income and Deductions, should be included on Line 36.
Work Opportunity Credit
The law allows a deduction for the portion of wages paid but disallowed as a deduction for federal tax purposes by reason of claiming the work opportunity credit on the federal return. That portion of the deduction for wages, which is disallowed for federal purposes, should be entered on Line 36. In order to claim this modification, you must attach Federal Form 5884.
Delaware Net Operating Loss Carryovers
Taxpayers who were prevented in previous years from carrying federal net operating losses to their Delaware returns (because of Delaware’s $30,000 limit on net operating loss carrybacks) are permitted to carry these additional losses forward on their Delaware return in years following the loss year.
Social Security/Railroad Retirement Benefits
Social Security and Railroad Retirement benefits are not taxable in Delaware and, therefore, should not be included in taxable income. Enter on Line 37 the total of any taxable payments included on Line 29.
Higher Education
Distributions received from qualified retirement plans (IRC Sec. 4974, including IRAs), cash or deferred arrangements (such as 401(k) plans) and government deferred compensation plans (IRC Sec. 457) may be excluded from Delaware adjusted gross income to the extent they are used in the same tax year to pay for books, tuition or fees at an institution of higher education attended by the taxpayer or by his or her dependents who have NOT attained the age of 26 by December 31, 2014; and as long as such amounts have been included in federal adjusted gross income.
Certain Lump Sum Distributions
Enter on Line 37 the amount, if any, of lump sum distributions included in federal adjusted gross income which you used Form 329 to calculate the tax on Line 7.