Tax Type
Individual Income Tax
Description
Adjusted Gross Income; Employer Reimbursement for Income Taxes Paid
Topic
Taxable Income
Date Issued
03-29-1991
March 29, 1991
Re: Request for Ruling: Individual Income Tax
Dear********************
This will reply to your letter of July 21, 1990. requesting a ruling on the taxability of reimbursements received pursuant to P.L. 98-151 (5 U.S.C.A. § 5724b). for taxes attributable to reimbursements for travel. transportation. and relocation expenses of employees transferred.
FACTS
In 1986. you received reimbursement from your employer. pursuant to P.L. 98-151. for income taxes previously paid by you which were attributable to moving expenses incurred! but not deducted in 1984.
The reimbursement for income taxes pursuant to P.L. 98-151 was reported on form W-2 as taxable income to you. However. because the amount received in 1986 is attributed to income taxes imposed by the federal government, a "taxing jurisdiction." you believe that the reimbursement qualifies for subtraction from federal adjusted gross income. in computing Virginia taxable income for 1986. pursuant to Va. Code §58.1-322(C)(5). Va. Code §58.1-322(C)(5) provides that to the extent included in federal adjusted gross income. there shall be subtracted:
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- The amount of any refund or credit for overpayment of income taxes imposed by the Commonwealth or any other taxing jurisdiction.
RULING
5 U.S.C.A. § 5724b. provides:
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- (a) Under such regulations as the President may prescribe and to the extent considered necessary and appropriate. as provided therein, appropriations or other funds available to an agency for administrative expenses are available for the reimbursement of all or part of the Federal, State, and local income taxes incurred by an employee, or by an employee and such employee's spouse (if filing jointly), for any moving or storage expenses furnished in kind. or for which reimbursement or an allowance is provided (but only to the extent of the expenses paid or incurred). Reimbursements under this subsection shall also include an amount equal to all income taxes for which the employee and spouse. as the case may be would be liable due to the reimbursement for the taxes referred to in the first sentence of this subsection. (Emphasis added).
Pursuant to this provision. your employer. the Federal government paid to you in 1986 a reimbursement. The reimbursement was for income taxes previously paid by you which were attributable to moving expenses incurred, but not deducted in 1984.
The reimbursement received from your employer, the Federal government, for income taxes paid on moving expense reimbursements is not an income tax refund or credit issued by a Federal government in its capacity as a taxing jurisdiction, but instead, it is additional compensation paid to you by the Federal government in its capacity as your employer. Although the amount of the reimbursement paid to you pursuant to P.L. 98-161 is computed on the basis of income tax benefits foregone in a previous year. and is not computed as a measure of compensation for your services, the reimbursement nonetheless. is compensation not an income tax refund or credit issued by a taxing jurisdiction.
Because the reimbursement is taxable compensation. which must be included in federal adjusted gross income in the year received. P.L. 98-151 has also provided the reimbursement amount be grossed up to include an additional amount to cover the income taxes attributable to the reimbursement that are incurred in the year that the reimbursement is received. In doing so. P.L. 98-151, has in effect, made the recipient of the reimbursements completely unharmed by Federal, State, and local income taxes.
The reimbursement received from your employer for income taxes paid on moving expense reimbursements is not an income tax refund or credit issued by a taxing jurisdiction, but instead, it is taxable compensation included in federal adjusted gross income. No statutory subtraction is available for this item of income in computing Virginia taxable income. The only subtractions from federal adjusted gross income that may be allowed in computing Virginia taxable income are provided in Va. Code §58.1 -322, a copy of which is enclosed.
For your future reference. because federal income tax refunds are not includible in federal adjusted gross income, subtraction of such amounts from federal adjusted gross income to arrive at Virginia taxable income is never allowed.
I hope that the foregoing has responded to your inquiries. However, if you need additional information, please contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner