I gotta pay taxes on my 05 tax returns?

[CN Spots]

MS is taxing me on my state tax returns from last year. Help me understand this... Haven't I already paid taxes on that money? Or did they give me back money in 05 that I shouldn't have given them in the first place along with the state taxes that I paid in for that amount of money...and now they want those taxes back?<br /><br />My head hurts.<br /><br />spots

 

[heycods]

Re: I gotta pay taxes on my 05 tax returns?

I No savvy? We dont have a state Income Tax. YET

 

[Major Woods]

Re: I gotta pay taxes on my 05 tax returns?

State tax returned money is taxable and must be claimed as income.<br />I can't explain it but that's the way it is here too.

 

[Ron G]

Re: I gotta pay taxes on my 05 tax returns?

I thought that was against the law.IM glad we dont have a st tax yet but there trying ever year to sneak one in.

 

[RubberFrog]

Re: I gotta pay taxes on my 05 tax returns?

The reason you pay tax on your state refund is because that amount was considered non taxable for the previous years federal return. Since you got it refunded, it wasn't tax and therefore considered income.

 

[KRS]

Re: I gotta pay taxes on my 05 tax returns?

The state tax that you overpaid last year (hence the refund) was taken out of your paycheck prior to being taxed by the feds.... so you get that money back in the form of last year's refund, but it's income that hasn't been fed taxed yet.<br /><br />And because you received the refund in '05 for your '04 taxes, it's '05 income.

 

[RubberFrog]

Re: I gotta pay taxes on my 05 tax returns?

Well there's two explanations, do we need a third?

 

[dogsdad]

Re: I gotta pay taxes on my 05 tax returns?

It's called "we have the gun---now pay up!"<br /><br />You must have been thinking that government is the servant of the People and that you have rights, or something.<br /><br />

 

[gspig]

Re: I gotta pay taxes on my 05 tax returns?

The reasons given are correct, however, the tax man has based it on faulty logic. The refund was given due to overpaying tax, the tax was withdrawn from gross pay(pretax) money. The fault in logic: Tax due at the end of the year is based on Gross Pay, not net pay. Unless your state is allowing you credit on your state tax due for fed income tax paid(not owed) they are double dipping.<br /><br />Ky does the same thing. The PIA is that if I adjust my tax witholding to minimize my Fed refund, I owe the state a load of money. As it stands I get nearly 2K from the Feds and $20 from the state.

 

[imported_Curmudgeon]

Re: I gotta pay taxes on my 05 tax returns?

Tax due at the end of the year is based on Gross Pay, not net pay.<br /><br />Not necessarily. My maximum allowable 401 contributions (and insurance premiums) are included in "gross", but are not taxed.<br /><br />BTW, you can adjust fed and state withholding seperately. No way I'd let the feds hold $2K when I can get 2% at the bank ...

 

[jtexas]

Re: I gotta pay taxes on my 05 tax returns?

You mean MS is reporting your refund as income to IRS to be taxed on your '05 federal return?<br /><br />You need to analyze the situation carefully - it might not be taxable after all.<br /><br />The state income tax you pay is deductible on your federal tax return, if you itemize deductions. <br /><br />So, if you filed a federal return that included a deduction for state taxes withheld, and you got a refund of those state taxes, then yes, it's taxable in '05.<br /><br />But, if your federal return included a deduction for your state taxes paid, e.g. your actual state tax liability, e.g. the Tax Due on your state return before subtracting amounts paid, then you didn't deduct it, and it's not taxable this year.<br /><br />Sorry if that wasn't clear...the main thing is, to check your '04 federal return and see if the amount of your deduction was the net amount paid after any state refunds.<br /><br />[disclaimer - no state income tax in my state; I've prepared many non-resident & part-year resident state returns for other states but not any resident state returns that I can recall, and not one for Mississippi - but the federal tax consequences stated above are the same regardless]

 

[Reel Poor]

Re: I gotta pay taxes on my 05 tax returns?

Im not sure about that Spots, now if you qualified and recieved earned income credit, that is definately taxable by the state.

 

[CN Spots]

Re: I gotta pay taxes on my 05 tax returns?

The accouting guru here at work agrees with RubberFrog and his creepy dog (hmm, sounds liks a children's book). They gave me money back that had not yet been taxed. <br /><br />Oh well. Thanks for the info.<br /><br />spots

 

[KRS]

Re: I gotta pay taxes on my 05 tax returns?

Originally posted by gspig:<br /> The reasons given are correct, however, the tax man has based it on faulty logic. The refund was given due to overpaying tax, the tax was withdrawn from gross pay(pretax) money. The fault in logic: Tax due at the end of the year is based on Gross Pay, not net pay. Unless your state is allowing you credit on your state tax due for fed income tax paid(not owed) they are double dipping.

Wrong.<br /><br />State tax is an itemized deduction, look on page 3 (schedule A) of your 1040, just above (or is it below?) property taxes paid.

 

[Mark42]

Re: I gotta pay taxes on my 05 tax returns?

Better read the fine print. In New Jersey, money returned from the prior year is taxable in the next year only under very specific conditions. Normally, a returned payment is not taxable as income because you already paid the tax on it. <br /><br />New Jersey sends you a document (a 1099 i think) reminding you of last years refund. You can ingore it for the most part. I have never included it, and the state does the auto-tax-calc on every return they refund money for and they haven't complained yet.<br /><br />In other words, the state agrees my tax return is correct without including last years overpayment return amount.

 

[KRS]

Re: I gotta pay taxes on my 05 tax returns?

Again, you never paid fed tax on the state withholdings, they're gonna tax it if you get a state refund.

 

[jtexas]

Re: I gotta pay taxes on my 05 tax returns?

KRS, those who don't itemize their deductions haven't deducted the state tax withholding, therefore should not be taxed on the refund.

 

[KRS]

Re: I gotta pay taxes on my 05 tax returns?

And the "standard" deduction compensates them.

 

[Mark42]

Re: I gotta pay taxes on my 05 tax returns?

Originally posted by KRS:<br /> Again, you never paid fed tax on the state withholdings, they're gonna tax it if you get a state refund.

You should be reporting the amount actually paid (amount due) in state tax on the federal return when itemizing. Then there is no issue on wether or not money is taxable. <br /><br />If you do the forms properly, refunded money is not taxable on the following years return either state or federal.

 

[jtexas]

Re: I gotta pay taxes on my 05 tax returns?

Mark, that's not always the case...it's okay to report your state income tax withheld on Schedule A - then the report the refund as income the following year.<br /><br />Just to be clear...if you did not have a deduction for "State Income Taxes" on Schedule A of your 2004 Form 1040, any refund of 2004 state income taxes recieved in 2005 is NOT taxable.