I received Wage Tax Refund from Philadelphia for previous years and applied them as income in a current year. NJ states that I owe them money for the previous years now.

Forum|Forum|7 years ago
June 4, 2019
1 reply
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I live in New Jersey and in 2013-2015 worked for Philadelphia company and Philadelphia tax was withheld from my paycheck. In 2015 I filed Wage Tax Refund Petition for two years (2013 and 2014) and received a partial refund as during these years I performed the work outside of Philadelphia. I received Form 1099-G for each refund in January 2016 and applied them to my 2015 tax return in the Turbotax section for State and Local Tax refunds as additional income.

Now, two years later, I am receiving Notice of Deficiency from State of New Jersey stating that I owe taxes plus interest plus penalties to State of New Jersey because on my 2014 NJ tax return I claimed credit for full taxes paid to Other Jurisdiction (Philadelphia) while I also received the refund for taxes to Philadelphia (although I received it only in 2015 and it actually was for two years).

Did I file the refunds for Philadelphia Tax correctly in 2015? Did I have to do anything else properly apply these refunds on my NJ tax return? Did State of NJ make the mistake stating that I owe taxes for 2014? What tax forms should I send to NJ Division of Taxation to show that NJ taxes were paid on the refunded amounts?

Update 09/03/2018

It has been 6 months since I posted my question and Turbotax still doesn’t have an answer.

I am really angry right now because in spite of me filing an amended tax return with NJ state back in March for three years I still have been audited, now for 2015, and requested to pay taxes owned (although I already paid them) plus interest for 3 years plus penalty. When I spoke with the auditor on the phone he told me that he is not aware of any refiling or payments (5 months after filing!). I sent him my amended tax return, but he still calculated interest and penalty. Now I have to dispute his calculations because 1) taxes were already paid and 2) he made a mistake (used NJ wages instead of Philadelphia wages in determining taxes actually paid to Philadelphia). What a pain!

I will be filing the claim under the TurboTax 100% Accurate Calculation Guarantee. I did not find any instructions in Turbotax as well as in NJ tax forms about how the tax refund from local jurisdictions can be applied if received not the same year without automatically triggering interest. NJ Division of Taxation calculates the taxes owned on the refund regardless when the refund was actually received. Also, the interest on the amount you own starts from tax filing date (4/15) following the tax year again regardless when the refund was received.

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DanielV01

Level 15

It depends, but you may have a case. For background, please click on this link for information on the NJ Credit: NJ Division of Taxation - Income Tax - Credit for Taxes Paid to Other ... On the site you'll see the following excerpt:

New Jersey requires you to pay tax on all of your income, regardless of where it is earned. The credit reduces your New Jersey Income Tax liability so that you don't pay taxes twice on the same income. This is not a refund of the taxes you paid to another state or city. Your credit cannot be more than the amount you would have paid if you earned the income in New Jersey. (Italics added and explained later).

New Jersey may be fully disallowing the credit; however, if you were not fully refunded on Philly tax, then you still are entitled to a NJ credit on the portion of Philly tax still remaining. What you will want to show NJ is the following:

The refund was for two separate years, so only part of the refund was from 2014. You first will want to show New Jersey that your refund was not entirely from 2014.
The refund was not a complete refund. Therefore, you still have Philly tax that you did pay, and so the credit needs to be recalculated based on that revised Philly tax amount
It is possible that you owe NJ nothing. As shown by the italicized statement in the excerpt, your NJ credit could be lower than how much Philly tax you paid. If the revised calculation of Philly tax is still greater than what NJ taxed the same income, you still owe NJ zero on that income.

Nevertheless, the key is documentation. You need to send NJ a copy of the documentation that shows how much refund was for each year, and how the credit recalculates. Only then can you relieve yourself of a portion if not all of the amount New Jersey is claiming you now owe them.

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Garik2Author

Level 2

Thank you for a quick response. I do have all documentation. My main question is what specific forms I have to present? I do my tax return using Turbotax every year. The income is entered in Federal Tax section and automatically applied to NJ tax return as total taxable income. I rely on Turbotax to calculate credit to other jurisdictions based on current year taxes paid. The Philadelphia refunds for 2013 and 2014 came in 2015, so it was added on Federal forms as income for 2015. The only place in NJ return related to Taxes paid to Other Jurisdiction is Schedule A&B (Gross Income Tax). There is no place to apply the refund for the previous years - it is all for current year taxes. So regardless how much was an amount how possibly I could apply it to 2014 tax return? Should I do an amended tax return every year just because refund comes a year later?