Members of the Maryland Association of Certified Public...

Tax questions

March 13, 1997

Members of the Maryland Association of Certified Public Accountants are answering readers' tax questions through April 15.

Q: In the past my accountant has told me that my state tax refund, which is not earnings but overpaid taxes, in taxable the next year. Why is that?

A: Generally, a state tax refund is taxable if you itemized deductions for the year that generated the refund, and you derived a tax benefit from the deductions. The state will issue a Form 1099-G reporting your refund, but if you did not itemize deductions in the prior year, you will not have to include the refund in income in the current year. (Other more complex exceptions for excluding the refund are described in the IRS instruction booklet, and may be better dealt with by a tax professional.)

Q: I had $1,040 withheld last year in a tax-deferred account for child care expenses. My expenses totaled $3,080, so I paid the $2,040 out of pocket. How do I account for all this on Form 2441? Also my employer recorded the amount withheld in Box 10 of my W-2. The IRS said it should have gone in Box 14, but I don't even have a Box 14. Is this a problem?

A: The amounts withheld from your paychecks were correctly reported in Box 10 of your Form W-2. On the form 2441, first complete Part I to determine the total payments made for child care. Then, complete Part III of Form 2441, which determines how the payments are treated. After completing Part III, complete Part II to determine the amount of your credit.

The above advice is for general purposes only and is not intended as legal, accounting or tax advice. Specific situations may vary.

To ask a tax question, call Sundial at (410) 783-1800. Call 268-7736 in Anne Arundel County, 836-5028 in Harford County and 848-0338 in Carroll County. Using a Touch-Tone phone, punch in the four-digit code 6225 after you hear the greeting.

Readers also can e-mail questions through The Sun's Web site --

Selected questions will be answered in the Business section. No questions will be answered by phone.

Pub Date: 3/13/97

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