Originally Posted by
Buck Rogers
Tunes -- Not trying to argue with you, and I live in a tax free state. I think if you look at this logically you can see the state's position. Let me give you a hypothetical that is uber extreme but illustrates my point. If a person made $70,000 in a year and chose his w-4 to overpay taxes of $5,000 a month (let's say he did not need current income), he would in effect pay $70,000 in taxes and have zero income. The state would be taxing nominally 7% of $0. So the state gets 0 money in their coffers to pay for infrastructure. The following year the federal government says, "I don't know WTF you're doing, but here is $55,000 taxes refund." (Thus you're $15,000 in taxes or thereabouts would have gotten paid to the federal government.) The state would still be left holding the bag with 0 income reported. The state, however, says "Wait a minute, you owe us taxes on $55,000 of income you didn't report," which seems fairly logical to me.
Since I don't pay any state taxes, I may have misunderstood what you were saying and if somehow you have to pay state tax on federal tax, I would agree with you wholeheartedly on the BS issue.
Clear as mud?
PS: Sorry, I see Sailing addressed this. I'm just a very slow typist.
Not really, Buck. Income is income and paid taxes are paid taxes and they are separate.
In the old days (i.e. last year) you might have been able to deduct state and local taxes on your Federal 1040. The "income" issue comes in at the Federal level with a state tax refund. Let's say In 2016, you had income of $100,000 and paid $10,000 in state income tax. As such, you deducted the $10,000 of state income tax from your federal tax return and then reduced your federal tax bill based on that $10,000 deduction. Also in 2016, you filed your state tax return showing $100,000 in income (income is income) and $10,000 in paid state income tax. However, your state says, "Oh no Mr. Buck, you were way too generous to your great state and you only needed to pay us $8,000. Here is your refund for $2,000." Now, in 2017, the Feds are gonna want to know about that $2,000 you claimed as a deduction in 2016 (deducted $10k but only paid $8k). So, on your 2017 Federal Tax return you would kindly let them know you "overdeducted/underpaid" on your 2016 Federal rerurn to the tune of $2,000. Not as much of an issue under the new tax law with the SALT cap in higher taxed states as any state tax refund would likely result in you still having payed taxes in an amount over the cap.