Tax Type
Individual Income Tax
Description
Earned Income without FAGI
Topic
Taxable Income
Date Issued
11-24-1998
November 24, 1998
Re: Request for Ruling: Individual Income Tax
Dear *****
This is in reply to your letter of October 18, 1998, concerning when federal adjusted gross income (FAGI) is subject to taxation by Virginia.
FACTS
You requested clarification of a ruling letter issued to you, Public Document (P.D.) 98-133 (8/19/98), copy enclosed. Specifically, you inquired as to whether a Virginia resident with earned income but no FAGI would be required to pay taxes to Virginia. You also wanted to know whether there are other ``instruments' that are subject to taxation. Lastly, you requested information on the mediums on which public documents are published.
RULING
As stated in P.D. 98-133 (8/19/98), income included in FAGI is subject to taxation by Virginia. There are instances, however, when a taxpayer can have earned income reported on the federal return, and yet, have a zero or a negative FAGI. For example, when a net operating loss from business activity exceeds the wages reported on the same federal return, the FAGI would be a negative amount. In this instance, no Virginia tax would occur. If, however, the negative FAGI is adjusted by Virginia modifications provided in Code of Virginia Sec. 58.1-322 such that the VAGI is at least the filing threshold amount set forth in Code of Virginia Sec. 58.1-321, the taxpayer would be subject to the tax in Virginia.
Income from some instruments are excluded from FAGI even though they are subject to Virginia taxation. For instance, Code of Virginia Sec. 58.1-322(B)(1) provides that to the extent excluded from FAGI, there will be added on the Virginia return:
Interest, less related expensed to the extent not deducted in determining federal income, on obligations of any state other than Virginia, or of a political subdivision of any such other state unless created by compact or agreement to which Virginia is a party. (Emphasis added.)
Interest on municipal bonds of a state other than Virginia would be an example of income subject to taxation in Virginia if it were not included in FAGI. Consequently, such income would be added to FAGI in computing Virginia taxable income.
Public Documents are sent to taxpayers in paper form or on disk after confidential information is removed. These taxpayers include, but are not limited to, individuals, companies that communicate the documents internally, libraries that make the documents available to the public, and publishing companies that make documents available to their customers.
If you have additional questions, please contact *****, Office of Tax Policy, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/17996N
Re: Request for Ruling: Individual Income Tax
Dear *****
This is in reply to your letter of October 18, 1998, concerning when federal adjusted gross income (FAGI) is subject to taxation by Virginia.
FACTS
You requested clarification of a ruling letter issued to you, Public Document (P.D.) 98-133 (8/19/98), copy enclosed. Specifically, you inquired as to whether a Virginia resident with earned income but no FAGI would be required to pay taxes to Virginia. You also wanted to know whether there are other ``instruments' that are subject to taxation. Lastly, you requested information on the mediums on which public documents are published.
RULING
As stated in P.D. 98-133 (8/19/98), income included in FAGI is subject to taxation by Virginia. There are instances, however, when a taxpayer can have earned income reported on the federal return, and yet, have a zero or a negative FAGI. For example, when a net operating loss from business activity exceeds the wages reported on the same federal return, the FAGI would be a negative amount. In this instance, no Virginia tax would occur. If, however, the negative FAGI is adjusted by Virginia modifications provided in Code of Virginia Sec. 58.1-322 such that the VAGI is at least the filing threshold amount set forth in Code of Virginia Sec. 58.1-321, the taxpayer would be subject to the tax in Virginia.
Income from some instruments are excluded from FAGI even though they are subject to Virginia taxation. For instance, Code of Virginia Sec. 58.1-322(B)(1) provides that to the extent excluded from FAGI, there will be added on the Virginia return:
Interest, less related expensed to the extent not deducted in determining federal income, on obligations of any state other than Virginia, or of a political subdivision of any such other state unless created by compact or agreement to which Virginia is a party. (Emphasis added.)
Interest on municipal bonds of a state other than Virginia would be an example of income subject to taxation in Virginia if it were not included in FAGI. Consequently, such income would be added to FAGI in computing Virginia taxable income.
Public Documents are sent to taxpayers in paper form or on disk after confidential information is removed. These taxpayers include, but are not limited to, individuals, companies that communicate the documents internally, libraries that make the documents available to the public, and publishing companies that make documents available to their customers.
If you have additional questions, please contact *****, Office of Tax Policy, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/17996N
Rulings of the Tax Commissioner