State taxes on 1040

[Windy]

If a client Lives in NJ and owed NJ taxes in 2014, but works in NY and received a refund from the NY non resident filing. Can the amounts be netted, and used as a schedule A deduction, or must the income appear on Line 10 of the 1040, and the payment appear on schedule A?

The amounts are large and cause tax liability and AMT taxes to be higher

[Burke]

Option #2. They cannot be netted. Must report on respective lines --(i.e, 1040 for refund, Sche A for tax paid.)

[TAXNJ]

In general

In general, agree with Burke's reply post.

Since you have all the facts, you may need to consider if client itemized prior year (generated the tax refund) and what was the tax benefit of the itemized state tax deduction as it relates to refund, if any.

[Snaggletooth]

It's even worse

The reporting requirements are entirely different, and they can't be netted.

It's even worse. Even if you REFUSE the refund and apply it to next year's taxes, you still have to report the overpayment from such state. Note the wording has been changed in recent years, and no longer captions "State tax refund" but instead now refers to "overpayments, offsets, etc." to prevent you from escaping the overpayment simply by applying to the next year.

Example: Your NY refund is $300 for 2015 and you decide to apply your refund to 2016. You thus have no refund. Assume during 2016 you pay in $1600. You have taxable income in 2015 of $300 and a Sch A deduction of $1900 for 2016.

A couple of side notes to the Sch A treatment. Make sure you fill out the taxable worksheet to see if you actually received a tax benefit before you assume taxation. Borderline itemization can obscure your perception of the refund. Also take note if the itemized deductions are eroded because of exceeding $258K in AGI - in which case a whole new calculation may occur outside the scope of this discussion.

[S T]

Let us not over complicate the situation

State tax refund needs to be reported from the prior year - say year 2014 $100 refund received in 2015, report on form 1040 line 10, that could be an actual check/deposit recieved OR an overpayment on the State Return in 2014 that was applied to an Estimated Tax Payment for year 2015.

To watch for is the State Estimated Tax Payments made in January - , for the prior year credit as in Jan 2015 for year 2014 - that is a Sched A line 5 item deduction as well as any other estimates made by Dec 31st of 2015.along with W-2 or 1099R withholdings etc I always have a detail sheet stating what the State tax deduction is for - something like 2015 ES pays made in year 2015 for year 2014 or State tax paid for 2014 made in 2015

Even though my software is suppose to carry forward from year to year - I always do the 1099G tax refund worksheet and input the numbers - mostly the software is correct, however, about 1 out of 15 or so are incorrect.

You should not "net" any amounts of refund versus payments -

If you are seeing an AMT amount, you might want to look at prior year return for form 6251 and complete form 8801 this year of filing to see if there is any credit or relief.

Sandy