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.
