We now have to itemize our NY refund on IRS return . How can we decrease the NY refund to pay less fed tax?

Question

Each year we get about $500 back from NYS. Starting two years ago we have itemized, so we have to declare the refund amount as income and get taxed on it by the IRS. We were told it is illegal to increase our withholdings from our present correct 2. Our taxes are pretty easy since all we own is a co-op. My job claims they are deducting the right taxes. It seems somehow the IRS is penalizing us for overpaying our NYS taxes. Is this just the way it is?

Answer 1

It won't make any difference if you reduce your withholdings. You'd have a smaller itemized deduction this year and a smaller refund to claim as taxable next year. The differences would cancel each other out.

Whoever told you it was illegal to change your withholdings is simply WRONG. You have every right to do so as long as you pay in enough to cover your tax liability. Feel free to adjust your withholdings enough to reduce the size of your refund. Just bear in mind that the whole thing with the taxability of the refund is a wash. Your total tax liability year in and year out will not change because of this.

Answer 2

I Just woke up to the same thing as most of the people on here. I Used turbo tax to e-file, it was accepted that same day, said I should receive my refund by 1/30/09, but the IRS where's my refund said 2/3/09. Woke up this morning and checked my bank, refund not there. Checked the IRS where's my refund again and it said now my refund should be deposited by 2/10/09. Just go off the phone with the IRS, the man I spoke to said, they have been having a problem all week with the where's my refund, and basically said I can try back monday, but the way things have been going I probably won't get it til the 10th or later. They don't really have any answers, I have never had this problem, I've always gotten my refund early. I really needed that money today, and now I'm lookin at waiting 10 days or more. Just spoke to Turbo tax, who gave me a chart that said I should have gotten my refund today, well alot of help that was, it just made me more mad. The women I spoke to there said she honestly believes I will be getting my refund very soon, and that this is the first day the IRS had deposited refunds into anyones accounts (which I don't believe) and that they do it every friday and to wait til next friday and it should be there. Thats easy for her to say, how can I believe it now since I was already told one day and it was changed, how do I know it won't change again? I had to stop payment on some of my bills that were set to be paid next week based on my refund coming, and now I'm all screwed up. THANK YOU IRS! So I called the IRS again, (that hold music makes me want to scream) because now the "Where's my refund" says they have no record of my return. All this women could tell me is it can take up to 3 weeks to process a return and if I don't receive it by the 16th then I can call back. This is just so frustrating, I understand it can take up to 3 weeks, then they shouldn't say you can get your refund in 7-10 days on turbo tax. Last year I filed on the 30th and had my refund by the 9th, thats how it should be.

Answer 3

What you have to declare the following year is just what you over-deducted the previous year. If you have a refund of $500, then you deducted $500 more the year before than you really had coming. So it's not only just the way it is, it evens out and you aren't getting cheated. If this happens each year, then each year you are deducting $500 more than you really owed in tax, then adding back the $500 refund from the year before, so you're ending up paying what you owe, not more, not less.

Answer 4

Its not a penalty. The IRS lets you deduct state income taxes paid from your taxable income, since you have normally not yet received your refund from new york when you file your federal return. So what they do, is keep track of any refund you got and just add it to your income the following year. You are only paying federal tax on the money once.