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Ask Lane Your Own Question
Category: Tax
Satisfied Customers: 9711
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I have been audited by the IRS for not claiming state tax

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I have been audited by the IRS for not claiming state tax refund. I worked in NJ (only 25%) of the time, lived in Florida full time worked out of there and also traveled. I received back 75% of taxes paid in NJ. Why would the fed's want to tax me on the NJ tax money I received back?

NPVAdvisor :

Hi, pease don't shoo the messenger here (hopefully having all the facts will help you "see around some corners), but the state income tax refund you received last year might need to be included on your federal income tax return. If you itemized your deductions on your federal tax return last year and you claimed a deduction for State and Local Taxes, then you need to figure the taxable portion of your state refund.

NPVAdvisor :

IRS probably got their copy of form 1099-G from the state or states that sent you a refund.

NPVAdvisor :

However, the good news is it MAY not be all taxable ... You calculate the taxable portion of your state tax refund using the Tax Refund Worksheet on page 23 of the Instructions for Form 1040 <- here's the link to that form

NPVAdvisor :

Basically, if you'll get out last year's tax return then compare your total itemized deductions to the standard deduction you could have taken ... Use a calculator, enter the amount of your itemized deductions, and subtract the standard deduction you could have taken instead. The result is the maximum taxable portion of your state tax refund.

NPVAdvisor :

I truly hope this helps

NPVAdvisor :

Let me know if you have any questions at all

NPVAdvisor :


Hi John,

... just checking back in here, as I never saw you come into the chat.

Let me know if you have questions or need more on this.


Customer: replied 3 years ago.

Hello I may not be saying this correctly In 2010 I paid NJ state taxes but only worked in NJ 25% of the time NJ gave me back the taxes I paid in NJ This were all on my W2 and I am not sure why I hope this make sense

Did you itemize the year before and take a deduction for those taxes paid?

If not, then what will happen is, in the audit, they'll realize that was the case.

But if you DID take the deduction the year before, they'll simply ask for the tax savings on that deduction back. (which will be your marginal bracket x the amount deducted ... if you were in the 25% bracket and deducted 1000, they'll want $ 250 back)

Probably what happened here, is they simply got that copy of the state 1099 and want to clarify.

If you did not deduct this amount then you'll "win the audit," so to speak.

Make sense?
Customer: replied 3 years ago.

on my w2 in 2010 I paid NJT of 9694.90 when I did my taxes turbo tax took my earnings and taxes and us 25% of what I paid to figure my NJ tax When I finished it gave me back 25% of the total amount I paid in as I only worked up in NJ 25% of the time The feds are now saying I did not pay federal taxes on the NJ takes that I received back

Then you'll be OK in the audit.

As I said, all the IRS sees is that 1099.

You'll be fine

An audit isn't necessarily for saying you did some thing wrong, they just want to clarify.
Customer: replied 3 years ago.

I have no 1099 for any of this


I only have the W-2 and my NJ State tax return where they returned the tax money This was based on what I paid in taxes and amount of time I worked in NJ


Then you missed getting the 1099 ... anytime a state issues a refund it is required by law to issue a 1099-G


Regardless, if you do not owe the money you have nothing to worry about.


If you deducted the full amount on the previous year's return, then you WILL owe taxes because you can't deduct taxes and then have them refund it.


It will be one way or the other.






Lane and 3 other Tax Specialists are ready to help you

Thanks so much John,


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