Sunday, February 26, 2012

Making Tax Refunds Harder to Get

In addition to Federal and State income taxes, my state has a city income tax.   It used be relatively simple to get a refund when taxes were over withheld for a city.  The taxpayer would file a non resident return with some details explaining the over withholding and get a refund check for the amount in the mail, usually, with no questions asked.

In the past two year, the process has become more laborious as the local tax offices are doing more reviews and sometimes incorrectly refusing the refund.   I suspect this is due to the decline in tax revenue and each tax office is trying to keep more of the revenue received.   In stories I have heard, the tax office has been the one in error.
  • City #1.   In the past, a taxpayer could file non-resident returns with a detailed letter explaining days out of office instead of using the city's adjustment form, some   Recently, the tax office started refusing the refunds because the city's  "official" form was not used.    

  • City #2.   To minimize the amount of taxes owed, a taxpayer would estimate the amount of days that would be worked in a city and had that amount of taxes withheld.  In previous years, the taxpayer would reconcile the actual days worked (and salary earned) and file for a refund or pay additional taxes.   The city would issue a refund or accept the additional tax based on the tax return.  Recently, the city stopped allowing taxpayers to revise the amount earned downward based on actual days worked in the city.

  • Since getting money back refunds from city income tax offices is more difficult, my solution is to pay less than the expected taxes and then pay the difference when a tax return is filed. The city income tax office will always accept additional tax payments and that way the city income tax office cannot refuse a refund.

    For more on New Beginnings, check back every Sunday for a new segment.

    This is not financial or tax advice. Please consult a professional advisor.

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