Tax questions

April 01, 1999

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

In 1997, my employer withheld $4,000 state income taxes. My 1997 state income tax liability was $3,000. I itemized my federal tax deductions for 1997 and I used $3,000 as my state income tax. I received a refund of $1,000 from the state in 1998. My tax adviser claims that I must show the $1,000 refund as 1998 income and pay federal taxes on it. I disagree. Can you explain?

Technically, the $1,000 refund is income in 1998 under the Tax Benefit Rule. You should claim the income, but amend your 1997 return to reflect the $4,000 of state taxes paid. The IRS will even pay you interest on your refund. In either case, this does not affect your state return.

James Wilhelm, CPA, Koehler, Sparks & Hammond

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, The Sun's telephone information service, at 410-783-1800. Call 410-268-7736 in Anne Arundel County, 410-836-5028 in Harford County, 410-848-0338 in Carroll County. Using a Touch-Tone phone, punch in the four-digit code 6225 after the greeting. To submit questions by e-mail and access an online tax guide, go to The Sun's Web site at

Selected questions will be answered in the Business section. No questions will be answered personally.

Pub Date: 4/01/99

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