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How do I split pension income using TurboTax?

by TurboTax•5• Updated 1 week ago

Eligibility to split your pension income with your spouse is determined by several key factors, such as your province of residence, age, income, and claimed credits and deductions. TurboTax will split your pension income only if the conditions listed here are satisfied. To optimize your pension-income split, be sure to enter all of this information into TurboTax first.

Note: When you prepare coupled spousal returns with TurboTax, the program automatically takes the figures needed from both returns into account in order to optimally split your pension income.

The following steps are for the spouse who will transfer eligible pension income.

  1. When you start your return, you must be preparing coupled returns. At the Who are you preparing this return for? screen, select My spouse/partner and me.
  2. Complete the Personal info profile. This unlocks the Tax home screen. At the Tax home screen, select Tax profile > Your tax profile. 
  3. Tax profile screens- in addition to other applicable checkboxes:
    • At the We'll start with info about your work and income screen ensure you check the box(es) for your pension income. 
    • At the Let's see if there's anything else to add screen, ensure you check the box for I want to split eligible pension income with my spouse/partner.
  4. In the top menu of the Tax home screen, you’re able to toggle between your tax return and your spouse’s. Toggle to your spouse’s tax return and complete your spouse/partner’s Tax profile screens.
  5. At the Tax home screen, from the top menu, toggle back to your tax return.
  6. Complete the Income section of the returns (accessible from the Tax home screen), including entry of your pension income info. 
  7. It is highly recommended that before selecting the TurboTax Review section, you complete all other applicable sections of the returns, for example, Deductions and Provincial.
  8. After completing all applicable sections for both returns, from the Tax home screen, select Review > Start > Continue. If you qualify for pension splitting you’ll be taken to the We've Optimized Your Pension Splitting screen, where you’ll see the optimal pension split amount. 
    • If you want to change the amount select I want to change my split.
    • If you want to use the optimal amount, select Continue.
  9. At the Tax home screen:
    • If you select View detailed summary you’ll see your split pension deduction at line 21000.
    • If you toggle to your spouse and select View detailed summary you’ll see the pension income transferred to their return at line 11600.
  1. Select Find (or the magnifying glass icon), enter pension into the search bar, select Split your pension with your spouse, then select Go.
    • If you’re preparing the returns separately, you'll need the amount from line 1 of your T1032 form. To do this:
    • From the menu, select View > Forms method.
    • Select the Forms button
    • In the search bar of the Form Lookup, enter T1032, select T1032, and select OK.
    • The required amount is on line 1 of the T1032 form.
    • From the menu select EasyStep, then continue.
  2. At the Pension Splitting screens, complete the entry of all applicable amounts
  3. If the returns have been prepared together, from the side menu, select View detailed summary. You’ll see the low income person’s deduction at RPP, RRSP, PRPP, FHSA, or pension splitting, and you’ll see the lower income person’s income included at Pension income.

Tips

Consider splitting pension income in the following situations:

  • If the transfer of pension income reduces the total taxes payable for a married or common-law couple.
  • If one spouse is in a higher tax bracket. At a minimum, you'll save the difference in tax rates between each spouse's tax bracket.
  • If one spouse isn't fully using the pension income amount.
  • If the spouse with the pension income to be transferred has OAS clawback or a reduced age credit amount.
  • If one spouse is paying provincial surtax.

If both spouses have eligible pension income, are fully using the pension income amount, and are in the same tax bracket, there may be no benefit to pension splitting.

Or, if neither spouse has tax to pay, pension splitting won't be beneficial.

TurboTax will automatically recommend a split amount based on the income and other amounts you enter in your return.

Additionally, you can try the Pension Splitting Optimizer. The Pension Splitting Optimizer will automatically propose the best distribution of your pension income (up to one half), which can help you and your spouse/partner pay less in taxes.

Note: The Pension Splitting Optimizer is only available when doing a coupled return.

The amount of pension income that can be split is indicated on the transferor's T1032 form. Pension income doesn't have to be split equally (50/50). You can choose the most beneficial amount to transfer to your spouse, as long as it doesn't exceed 50% of your eligible pension income. Pension splitting can impact other tax credits and calculations. You should review these claims before and after transferring pension income:

  • Age amount (line 301)
  • Medical expenses (line 330)
  • Donations and gifts (line 349)
  • Social benefits repayment (OAS claw-back) (line 235)
  • Spouse or common-law partner credit (line 303)
  • Pension income amount (line 314)
  • Amounts transferred from your spouse or common-law partner (line 326)

You can choose to override the recommendation by changing the amount in the field to any amount up to the maximum split amount allowed.