Tax Type
Individual Income Tax
Description
Federal adjusted gross income; Employer-provided educational benefits
Topic
Taxable Income
Date Issued
10-27-1993
October 27, 1993
Re: Ruling Request; Individual Income Tax and Withholding
Dear*************
This will reply to your letter of September 21, 1993 in which you requested guidance with respect to the retroactive reinstatement of the exclusion for qualified employer-provided educational benefits. I have treated your letter as a request for a ruling to be issued pursuant to Va. Code §58.1-204.
FACTS
The Omnibus Budget Reconciliation Act of 1993 (OBRA 93) reinstated Internal Revenue Code (IRC) §127 retroactively to July 1, 1992. IRC Section 127, which provides an exclusion for certain educational benefits from an employee's gross income, had expired for benefits paid after June 30, 1992. Because the exclusion was reinstated retroactively, taxpayers are permitted to amend their 1992 federal tax returns to claim a refund for the benefits which were included in taxable income from July 1, 1992 through December 31, 1992. In IR 93-85 (9/16/93), the Internal Revenue Service provided employers with certain options to account for excess federal withholding of 1993 individual income taxes, and a special procedure for amending 1992 returns on an expedited basis. You have requested a determination as to the Virginia tax consequences of the retroactive federal change.
RULING
1992 Taxable years: For taxable years beginning before January 1, 1993, the starting point for determining an individual's Virginia taxable income is federal adjusted gross income. Federal adjusted gross income is determined under the Internal Revenue Code, including amendments thereto, as said amendments become effective at any time.
Accordingly, the OBRA 93 amendments to the Internal Revenue Code which were retroactive to 1992 taxable years are effective for Virginia purposes. Taxpayers that are entitled to amend their 1992 federal returns with respect to the retroactive OBRA 93 changes may also amend their 1992 Virginia returns, provided such amended returns are filed in accordance with Va. Code §§58.1-311 and 58.1-1823.
Taxpayers that amend their 1992 federal returns using the expedited process prescribed by IR 93-85 should attach a complete copy of their federal amended return to their Virginia amended return. The notation "IRC 127" should be prominently indicated in the top margin of the return. Representatives within the department have been instructed to look for amended returns with this designation, and process such returns as a priority item on an expedited basis.
1993 Taxable Years: For Virginia purposes, during taxable years beginning on or after January 1, 1993, but before January 1, 1994, all references to the Internal Revenue Code are tied to the law as it existed on December 31, 1992 (Chapter 643 of the 1993 Acts of the General Assembly). Accordingly, legislation or other changes to the Internal Revenue Code enacted after December 31, 1992, shall not be applicable to 1993 taxable years.
Legislative or other changes to the Internal Revenue Code enacted prior to January 1, 1993, shall be applicable to 1993 taxable years, even if such changes were not effective until after December 31, 1992. In addition, in interpreting Chapter 643 of the 1993 Acts of the General Assembly, the department has determined that the provisions of the Internal Revenue Code which expired during 1992, but which were retroactively reenacted by OBRA 93, shall be effective for 1992 and 1993 taxable years for Virginia purposes.
Accordingly, the reenacted provisions of IRC §127 shall be effective for Virginia purposes for 1993 taxable years. Because the law was amended retroactively, employers may have withheld Virginia income taxes on excludable educational assistance payments. Employees subject to excess withholding will receive the excess as a refund when they file their 1993 Virginia income tax returns.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/7377M
Rulings of the Tax Commissioner