LG Gone Wild Posted January 27, 2009 Share Posted January 27, 2009 We got a little tax refund last year from California. This year, they issued us a 1098 (or something or other), stating that our refund is actually income for this tax season. Can they do that? Quote Link to comment Share on other sites More sharing options...
KristenS Posted January 27, 2009 Share Posted January 27, 2009 I don't know about California, but I thought a refund from one (state, federal) was taxable by the other. I know I've seen this on ours before. I forget which way though. I don't think that the state can tax what they already taxed (which was your refund). That's just mind-boggling. Quote Link to comment Share on other sites More sharing options...
LG Gone Wild Posted January 27, 2009 Author Share Posted January 27, 2009 I don't know about California, but I thought a refund from one (state, federal) was taxable by the other. I know I've seen this on ours before. I forget which way though. I don't think that the state can tax what they already taxed (which was your refund). That's just mind-boggling. Well, it's like the money California borrowed from us and returned (without interest) is now considered income. Quote Link to comment Share on other sites More sharing options...
cjzimmer1 Posted January 27, 2009 Share Posted January 27, 2009 Our state refund money is counted as income on the federal taxes every year. The reason is that each year we can deduct the amount of taxes withheld from our earnings for state taxes. So if we had $4000 withheld by the state we can lower our income by that amount (via itemized deductions). But if we get $1000 back from the state than the federal government didn't get to collect taxes on it. So the next they count the $1000 as income so they can get their share of it. Anyways that is standard in my state if you itemize. I don't know what CA laws are but it wouldn't surprise me if they did something similiar. Quote Link to comment Share on other sites More sharing options...
sassenach Posted January 28, 2009 Share Posted January 28, 2009 We got a little tax refund last year from California. This year, they issued us a 1098 (or something or other), stating that our refund is actually income for this tax season. Can they do that? I thought that was standard in any state with income tax. Have you previously lived in no income tax states? Quote Link to comment Share on other sites More sharing options...
Garga Posted January 28, 2009 Share Posted January 28, 2009 I'm pretty sure they can do that. Didn't they tax our federal refund that we all got a few years ago? Quote Link to comment Share on other sites More sharing options...
LaxMom Posted January 28, 2009 Share Posted January 28, 2009 Maryland considers a refund (as in over-withholding of taxes) to be income in the next year. Annoying, no? Quote Link to comment Share on other sites More sharing options...
FlockOfSillies Posted January 28, 2009 Share Posted January 28, 2009 We take it to the tax guy every year, and we write off the state refund to decrease our AGI. Quote Link to comment Share on other sites More sharing options...
Rhonda in TX Posted January 28, 2009 Share Posted January 28, 2009 That wasn't technically a refund. It was part of a stimulus package. Quote Link to comment Share on other sites More sharing options...
CookieMonster Posted January 28, 2009 Share Posted January 28, 2009 Our state refund money is counted as income on the federal taxes every year. The reason is that each year we can deduct on a federal return the amount of taxes withheld from our earnings for state taxes. So if we had $4000 withheld by the state we can lower our income by that amount (via itemized deductions). But if we get $1000 back from the state than the federal government didn't get to collect taxes on it. So the next year they count the $1000 as income so they can get their share of it. ditto The first time I encountered this phenomenon I was confuzzled myself. But it makes sense now. Quote Link to comment Share on other sites More sharing options...
LG Gone Wild Posted January 30, 2009 Author Share Posted January 30, 2009 That wasn't technically a refund. It was part of a stimulus package. It was a refund. We get one every year. This is the first year California is calling their refund an income. We've never had the other situation where the feds consider the state refund an income. Quote Link to comment Share on other sites More sharing options...
HiddenJewel Posted January 30, 2009 Share Posted January 30, 2009 The way I understand it is that any state refund you get needs to be counted as federal income IF you took said state tax as a federal deduction on 1040 Schedule A the prior year. Quote Link to comment Share on other sites More sharing options...
TraceyS/FL Posted January 30, 2009 Share Posted January 30, 2009 The way I understand it is that any state refund you get needs to be counted as federal income IF you took said state tax as a federal deduction on 1040 Schedule A the prior year. :iagree: Turbo Tax always moved the CA refund from the prior year over to federal as income when we had deducted it. Quote Link to comment Share on other sites More sharing options...
MyThreeSons Posted January 30, 2009 Share Posted January 30, 2009 It's taxable income if you itemized last year and claimed the state taxes as a deduction. It's been that way for as long as I can remember. Quote Link to comment Share on other sites More sharing options...
nmoira Posted January 30, 2009 Share Posted January 30, 2009 From IRS Pub 18 (2008), though this is not a new rule. State tax refund. If you received a state or local income tax refund (or credit or offset) in 2008, you generally must include it in income if you deducted the tax in an earlier year. The payer should send Form 1099-G, Certain Government Payments, to you by February 2, 2009. The IRS also will receive a copy of the Form 1099-G. Use the State and Local Income Tax Refund worksheet in the 2008 Form 1040 instructions for line 10 to figure the amount (if any) to include in your income. See Publication 525 for when you must use another worksheet. If you could choose to deduct for a tax year either: State and local income taxes, or State and local general sales taxes, then the maximum refund that you may have to include in income is limited to the excess of the tax you chose to deduct for that year over the tax you did not choose to deduct for that year. For examples, see Publication 525. If you itemized the previous year, you included the total amount of tax you paid the state. Since some of that was refunded, you deducted from your Federal taxes more than you were entitled to. Hence the adjustment the next year. This would be quite a loophole otherwise: Would it really be reasonable for someone to overpay their state taxes by a huge amount then not have to adjust their taxes the next year? Quote Link to comment Share on other sites More sharing options...
Hot Lava Mama Posted January 30, 2009 Share Posted January 30, 2009 It's taxable by the fed's because you get a deduction for fed tax purposes (even if you did not itemize). Also, since it was part of the stimulus package, yes, it's taxable for California, also. From one Californian to another, be happy because this year they are going to ILLEGALLY HOLD YOUR REFUND because of the budget crisis. Ahh. Such wise leaders we have chosen, don't you think! By the way, don't even THINK about following the lead of our California leaders and NOT paying your California taxes if your family has a "fiscal crisis", they will throw you in jail. Hot Lava Mama Quote Link to comment Share on other sites More sharing options...
LG Gone Wild Posted February 2, 2009 Author Share Posted February 2, 2009 It's taxable by the fed's because you get a deduction for fed tax purposes (even if you did not itemize). Also, since it was part of the stimulus package, yes, it's taxable for California, also. From one Californian to another, be happy because this year they are going to ILLEGALLY HOLD YOUR REFUND because of the budget crisis. Ahh. Such wise leaders we have chosen, don't you think! By the way, don't even THINK about following the lead of our California leaders and NOT paying your California taxes if your family has a "fiscal crisis", they will throw you in jail. Hot Lava Mama I hear ya. I wasn't planning on it. I can't even comment (politely) on these tax cheat politicians who advocate more taxes for the rest of us. Quote Link to comment Share on other sites More sharing options...
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