Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, October 23, 1995 TAG: 9510230079
SECTION: MONEY PAGE: 6 EDITION: METRO
SOURCE: MAG POFF
DATELINE: LENGTH: Long
A: Dianne DeLoach, spokeswoman for the Virginia Department of Taxation, said that all retirees, including those who worked for state or local governments, have been taxed equally since 1987. People with pensions from private employers are no longer at a disadvantage.
There is a so-called age deduction for Virginia taxpayers, however. DeLoach said this is provided for on the state income tax forms.
For 1994, the returns you filed last April, the age deduction was $12,944 for those over the age of 65 and $6,472 for those ages 62 through 64. That amount, however, was reduced by Social Security or Railroad Retirement benefits, so not many people could claim it.
You will find a change when you file your 1995 tax returns next spring. DeLoach said the age deduction is $10,000 for those 65 and older and $5,000 for those ages 62 through 64. This amount, although it is lower than last year, will not be reduced by anything.
No tax relief for returning students
Q: I remember reading in the paper a while back about the possibility of tuition being tax deductible for students returning to college. What has happened to that? How far has that suggestion gone? I'm 32 years old and returned to college last year to finish my bachelor's degree. I spend $1,200 a year on tuition and an estimated $300 on textbooks and supplies. At this rate, I'm looking at going to school for four years on a part-time basis because I can afford to take only one class a semester. I have to work a second job just to pay for my tuition. Is there any tax relief in sight for college returnees?
A: Ben Klein, who works in the office of Rep. Bob Goodlatte, R-Roanoke, knows of no legislation under active consideration that would make college tuition and expenses tax deductible. Perhaps you have read about a trial balloon someone launched that died for lack of support.
Or perhaps you are thinking of HR 1215 that would replace Individual Retirement Accounts with so-called American Dream Accounts. Contributions to these plans would not be deductible, but the contributions could be withdrawn and spent without tax consequences.
Unlike IRA accounts, the American Dream Account could be spent for college tuition as well as for retirement.
Klein said the bill passed the House of Representatives several months ago and is awaiting action by the Senate. No date had been set for consideration and hearings.
The state of taxing pension plans
Q: I retired from a company in New York state in the early 1980s and moved to Virginia at that time. When I left the company, I left money in my profit-sharing, tax-deferred account. This account has remained as such, and tax-deferred interest (while I lived in Virginia) has increased to four times the amount I left there.
In another year, I will start the required withdrawal, probably based on life expectancy. I will pay federal income tax on this withdrawal and also state income tax. But how much for each state?
New York state says I should pay tax on the entire amount since I was an earning resident of New York while contributions were made to this account. Because this income will be reported via federal tax forms to Virginia (and three-quarters of the account represents interest earned while I was a resident of Virginia), how much should be taxed by Virginia? If I have to pay New York tax on the entire amount, is there a credit opportunity on the Virginia tax form?
An official of the Virginia Tax Department says I have to pay taxes to both Virginia and New York State on the entire amount. If so, this represents double taxation of the worst type.
A: F. Fulton Galer, a certified public accountant with the Roanoke firm of McLeod & Company, said you are correct in assuming that your pension income would be taxable in Virginia because you are a resident and the state's taxable income is derived from the federal tax return.
However, Galer said, your question regarding the taxation of the pension income in New York, where you were a resident 10 years ago, varies depending on the distribution that you elect on the pension.
New York does tax lump-sum distributions of pension plans to residents of other states if they were prior New York residents and the contributions to the pension plan were made during that New York residency, Galer said.
But he said New York does not tax a nonresident on the pension income if the pension payments are received in periodic payments that approximate an annuity payment over the life expectancy of the retiree.
If you elect to withdraw periodic payments over your life expectancy from the retirement plan, Galer said, you will not be taxed in the state of New York.
by CNB