turbotax icon
turbotax icon
turbotax icon
turbotax icon
cancel
Showing results for 
Search instead for 
Did you mean: 
Announcements
Close icon
Do you have a TurboTax Online account?

We'll help you get started or pick up where you left off.

Garik2
Returning Member

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.

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. 

Connect with an expert
x
Do you have an Intuit account?

Do you have an Intuit account?

You'll need to sign in or create an account to connect with an expert.

5 Replies
DanielV01
Expert Alumni

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.

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:

  1. 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.
  2. 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
  3. 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.

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
Garik2
Returning Member

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.

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?

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.

I had the same issue. I got a refund for two years in 2016. Now I am being charged interest and penalties all the way back to 2014 even tough I got the refund in 2016. My phili age tax refund was $2005 but now I owe NJ $2163.  I'm pretty miffed that turbo tax did not pick this up, since everything was entered correctly. I no longer have the confidence in the program I once had. And I also have to immediately re-file 2015 2016 and 2017 to get ahead of the next audits. Not happy.
Garik2
Returning Member

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.

Yes, it is very disappointing. I have been using Turbotax for 20 years and never had a problem until now.
This is not only Turbotax fault, but also NJ Division of Taxation for not having clear instructions on how to deal with refunds received from City of Philadelphia for the previous years. As I stated in my previous message there is no place in the NJ forms to properly apply the refund. The only way you can do it by filing amended return for the years you received the refund. But who wants to go through this pain of filing first the petition for refund with city and then filing another tax return with the state in order to pay pretty much the same amount? Not only my taxes were incorrectly calculated, but for me it was not worth the time and effort because my NJ tax rate is about the same as Philadelphia wage tax rate (3.465%). The only time it has some financial sense is if your final NJ tax rate is much lower than fixed City wage tax rate. Base on NJ rate schedule it may happen for people in the lower tax bracket (less than $35K for singles/$70K married). By shifting the income tax to NJ they may pay less in taxes.
I hope that this explanation will help someone not to fell in the same trap as I did.

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.

I'm not going for the refund anymore. We got audited for four years and ended up having to pay a little over $10,000 in taxes total. Dozen of people at my office were audited as well.
Use your Intuit Account to sign in to TurboTax.
By selecting Sign in, you agree to our Terms and acknowledge our Privacy Statement.
message box icon

Get more help

Ask questions and learn more about your taxes and finances.

Post your Question
Manage cookies