In the Washington Business tax guide last week, directions for the Virginia income subtraction for taxpayers age 62 and older were misstated. The subtraction is reduced by gross Social Security or Tier I Railroad Retirement benefits. (Published 2/18/91)
Recent developments in the legislature have resulted in changes to the Virginia income tax return for 1990.
The income level to which the top 5.75 percent tax rate applies has been raised from $16,000 to $17,000.
The Tax Reform Credit, originally available for tax years 1989 to 1993, has been repealed.
A new income subtraction for taxpayers age 62 and over replaces both the income subtraction for taxpayers over 55 and the age credit for taxpayers age 62 and over.
Virginia does not conform to the federal deduction for one-half of the self-employment tax in 1990; this amount is an addition to federal adjusted gross income.
The courts have provided Virginia residents with two potential refund opportunities:
The much-publicized Alexandria Circuit Court decision denying retroactive refunds to federal retirees is on appeal to the Virginia Supreme Court.
In a Virginia Supreme Court ruling, the D.C. unincorporated business franchise tax was ruled to be an income tax and, therefore, allowable as a credit against the Virginia individual income tax.
Notwithstanding this case, Virginia continues to hold to its position that the D.C. tax is a franchise tax and, therefore, not allowed as an offset to Virginia income tax. Virginia has asked for a rehearing.
Both cases still are with the courts.
If you have properly paid your Virginia tax and have not claimed a refund for your federal retirement pay reported on your 1988 Virginia return or the credit for the D.C. unincorporated franchise tax on your 1988, 1989, and 1990 Virginia returns, you should file refund claims to protect your rights.
Filing Status The filing categories on the Virginia return have not changed. Virginia does not provide a filing status corresponding to either the federal head of household or qualifying widow or widower with a dependent child.
If you use either of these on your federal return, file as single on your Virginia return. Otherwise, carry over your federal status.
You may use the combined separate category whether you filed your federal return jointly or separately.
Combined separate filing is usually the better method if both spouses had taxable income, but try both joint and combined separate filing to see which method yields the lower total tax.
Exemptions: Virginia allows extra personal exemptions for taxpayers age 65 or older and for blindness, so be sure to check all the applicable boxes on lines 5a and 5b.
Each exemption, including exemptions for dependents, is worth $800, the same as in 1989.
Income: Transfer to your Virginia return, as a single figure, your federal adjusted gross income exactly as it appears on your federal return.
If you are filing combined separate returns, enter in column A and B the amounts attributable separately to each spouse.
Part I: Income Subtractions For Taxpayers 62 and Older This is a new subtraction to replace the retirement age credit and the income subtraction for taxpayers age 55 and over.
The subtraction is $6,000 for taxpayers age 62 to 64 and $12,000 for taxpayers age 65 and over.
The subtraction is reduced (but not beyond zero) by any Social Security or Tier 1 Railroad Retirement benefits included in your federal income.
Do not include benefits you may have received that were properly excluded from your federal return.
Either the subtraction for taxpayers 62 and over or the disability income subtraction, but not both, may be claimed on the return.
Part II: Additions To Federal AGI Intereston obligations of other states: You must add back municipal interest not included in federal adjusted gross income (AGI) on non-Virginia obligations. If you received dividend income from a tax-free mutual fund that invested in obligations of Virginia as well as other states, special consideration is required.
Refer to the instructions for the appropriate treatment.
Lump-sum distributions from Federal Form 4972: If, on your federal return, you elected to use income averaging for a lump-sum distribution from a retirement plan, you must add back some or all of the amounts excluded from federal AGI.
Use the work sheet on page 21 of the instruction booklet to calculate this addition.
Self-employment tax claimed as a deduction on federal Form 1040: If you claimed one-half of your self-employment taxes paid as an adjustment to gross income on your federal return, you must add that amount to federal AGI on line 38.
Virginia will conform to federal treatment beginning in 1992, at which time you may recover amounts added in 1990 and 1991.
Part III: Subtractions From Federal AGI In this section you should subtract any state refund reported as income on your federal return, in addition to the items described below:
Interest on Obligations or Securities of the United States: Subtract from federal AGI any interest on federal obligations reported on your federal return.
If you receive income from "U.S. Treasury" series mutual funds, then see the instruction booklet for detailed treatment.
Social Security: At this point, subtract Social Security and Railroad Retirement benefits included in federal adjusted gross income.
Remember, if the benefits received are not taxable on your federal return, do not include the tax-exempt portion of the benefits here.
Disability income: Subtract the amount of disability income used on Schedule R to calculate the federal credit, not the amount of the credit. Attach a copy of federal Schedule R to your Virginia return.
You may claim either this subtraction or the subtraction for taxpayers age 62 and over, but not both.
Other subtractions: If you are a foster parent, you may be eligible to subtract $1,000 for each child living in your home under permanent foster care, if you have claimed the child as a dependent on both your federal and Virginia returns; if you itemize deductions on your federal return and claim the standard 12 cents a mile for the use of your car for charitable purposes, you may subtract an extra 6 cents a mile on your Virginia return; and for most taxpayers, the final year for claiming an ACRS subtraction was on the 1989 Virginia return, but if you received a pass-through subtraction from a fiscal year entity (for example, a partnership with a year end of March 31, 1990), you may complete Form 302 and enter the subtraction amount under "other" subtractions.
Part IV: Credit for Taxes Paid to Another State If you paid income tax to another state, you may be eligible for a credit against your Virginia tax.
Taxes paid to certain jurisdictions, including the District and Maryland, are not allowed as credits to Virginia tax, so you must file the appropriate forms with those states in order to secure a credit for Virginia tax against the other state's tax.
The credit is nonrefundable, meaning it may not exceed the amount of your Virginia tax liability.
Instructions are found on page 12, and the credit is figured in Part IV of Form 760.
If you claim the credit, you must attach a copy of the other state's return to your Virginia return.
Part V: Addition to Tax, Penalty and Interest This is a new section on the Virginia 760 used to calculate the penalties and/or interest for under-withheld taxes, underpaid estimated taxes, late filing and late payment.
Detailed instructions are found on pages 25 and 26.
If you owe less than $150 in tax at the time of filing and paid your tax throughout the year, you are not subject to the penalty for under-withheld or underpaid tax.
Likewise, if you owe more than $150 but paid at least 100 percent of your 1989 tax liability or 100 percent of the tax for your 1989 income based on 1990 rates and made the payments gradually throughout the year, you may enter "none" on line 54.
Otherwise, the Forms 760C or 760F for reporting underpayment of estimated tax are available from the state.
If you do not complete this section, but are subject to the penalties or interest, the Department of Taxation will calculate the amounts and send you a bill.
Now return to page one of the return.
Step 1: Compute Your AGI In this section, carry forward all of the amounts you have just calculated on page two of the return.
Step 2: Deductions If you itemize deductions on your federal return you must itemize on your Virginia return. Otherwise use the standard deduction.
If you are married and file a combined separate return, you are not required to split the standard deduction evenly.
You may allocate the $5,000 in full to either spouse, or to both husband and wife in whatever proportion you wish.
If you can be claimed as a dependent on someone else's tax return, your standard deduction cannot be greater than your earned income.
If you itemize, carry over the amount of federal deductions from Line 34 of your federal return.
Subtract the amount claimed for state and local income taxes.
Real and personal property taxes are deductible. The sum of these two amounts is your Virginia itemized deduction.
Attach a copy of your federal Schedule A to the Virginia return.
Personal exemptions: Multiply the number of exemptions determined above by $800. If you are a dependent on someone else's return, you are still allowed a personal exemption in Virginia.
Child-care expense: Virginia allows a deduction for child care and dependent care, rather than a tax credit as on the federal return.
So do not use the federal credit for your Virginia return.
Instead, carry over to line 15 of Form 760 the amount of allowable expenses from your federal return, and attach a copy of Form 2441 (or Part I, Schedule 1 of Form 1040A) to your Virginia return.
Like the federal ceiling, the Virginia limit on the deduction is $2,400 for the care of one dependent and $4,800 for two or more.
If you are filing a combined separate return, the amount of the deduction may be allocated to either spouse or split between them in any ratio desired.
Virginia taxable income: Subtract your deductions from your Virginia adjusted gross income to arrive at Virginia taxable income.
Step 3: Tax Computation, Payments and Credits Tax computation: When you have arrived at your Virginia taxable income, find your tax either from the tax tables or from the tax rate schedule.
If your Virginia taxable income is greater than $42,713 your tax is $2,197 plus 5.75 percent of the excess over $42,713.
Payments: Be sure to include all amounts withheld along with estimated payments made against your 1990 tax liability.
Also include any overpayment from 1989 credited to 1990 and any payments made with Form 760E extending the filing due date of the return.
Tax credits: You have already calculated the credit for taxes paid to another state on page 2 of the return.
All other credits are calculated on the new Schedule CR, Credit Computation Schedule.
Credits allowed include the Neighborhood Assistance Act Credit, the Enterprise Zone Act Credit, Conservation Tillage Equipment Credit and the Fertilizer and Pesticide Application Equipment Credit.
Step 4: Compute Amount You Owe or Refund Due Overpayment deductions: If your tax computations show an overpayment, you may contribute part or all of your refund to support the state conservation program for non-game wildlife, sponsored by the Commission of Game and Inland Fisheries.
You may also contribute $2 of your refund to either the Democratic or Republican state parties.
Three additional organizations are listed on your return as possible recipients of a contribution from your overpayment:
The U.S. Olympic Committee; the Open Space Recreation and Conservation Fund sponsored by the Department of Conservation and Historic Resources; and the Department of Housing and Community Development-Housing for the Homeless, Elderly and Disabled Fund.
These contributions may only be designated if you have overpaid and are due a refund.
Accelerated refund: If you are due a refund, you may be able to get your check in about two weeks by attaching to your return the yellow form 760 AR.
You must have filed a Virginia return for 1989, and your name, address, Social Security number and filing status must be the same on this return as it was on the return for 1989.