Curious if I am the only person in Michigan to experience this.
In 2025, I did a Roth Conversion where I rolled money from an employee sponsored 401K to a Roth IRA. The 1099-R generated from the institution holding the 401k funds indicated in box 7, a code G and listed the full amount in Box 2a. Per IRS guidelines and the institution, the 1099-R was done correctly.
Fast forward, I filed my taxes. No issues with the IRS, however, in Michigan under Public Act 4, pensions (including 401k distributions) are eligible for a subtraction from the AGI resulting in no taxes on the 401k distribution (up to a certain limit). So in affect, my 401k distribution should have resulted in no taxes. However, Michigan's auditing software flagged this since it does not recognize a code G as a valid code on a 1099-R. This has resulted in Michigan revising my 1040 and taxing the full amount of the roll-over. So instead of a refund, I am being assessed a tax due bill with penalities and fees. The rollover should qualify for a pension subtraction on Form 4884. In fact, TurboTax did the calculation correctly but it's Michigan's auditing software that is creating the issue.
Has anyone else experienced this? I have filed a response to their letter and have asked for a manual review. I have also called at least 30+ times to the Michigan Department of Treasury but no response.
Michigan Auditing Software not Recognizing 1099-R Box Code G
byu/Wide-Operation-8482 intax
Posted by Wide-Operation-8482
5 Comments
[deleted]
Were you born in 1967 or later?
> Those born in 1967 or after: You are not eligible for a deduction in the 2025 tax year.
https://www.michigan.gov/ors/public-act-4-of-2023-faq
A code ‘G’ is not eligible for the subtraction. However, a normal distribution from a 401K (code ‘7’) is eligible. Also, a standard Roth conversion is also eligible. Unfortunately, you did a 401K to a Roth IRA which is not subtractable.
[https://www.michigan.gov/taxes/iit/tax-guidance/tax-situations/retirement-and-pension-benefits/1099-r-distribution-codes](https://www.michigan.gov/taxes/iit/tax-guidance/tax-situations/retirement-and-pension-benefits/1099-r-distribution-codes)
State-level system often lag behind the IRS when it comes to specific 1099-R distribution codes, especially with the nuances of a direct rollover like Code G.
If you’re close enough, you could try going to a [field office](https://www.michigan.gov/taxes/coll-audit/audit/department-of-treasury-field-offices-1) to see about talking to someone.