State income taxes paid in error.
In 2015, at almost 59 years old I lost my job. I used money from my 401K plan to survive. I did not discover until the end of 2017 that I had mistakenly paid Illinois income tax on my 401K withdrawals. I also paid estimated state taxes on 401K withdrawals for 2017. I did amended state tax retuns for both 2015 and 2016 and received my money back from the state. Will the state show the money returned as refunds? This money was returned not refunded as I had already paid federal taxes on this money. How do I deal with this when I file taxes for 2018? It will show as income and affect both what I pay in federal taxes and my reported income that I showed when I applied for Obamacare .
Thanks,
Cindy
Terry Says
OK, Illinois does not tax retirement plan withdrawals or pensions — yet! Glad you realized and received a refund. If you made excess estimated tax payments in 2017, it will show up as a credit on your account — and thus you will have to pay lower taxes on your 2018 taxable income — unless you elected to have the 2017 excess payments refunded to you.
Any tax refund does NOT constitute “earned income” — and should not be counted in your total income for Obamacare pricing purposes. But I’m going to suggest you check with a CPA and make sure you get things properly sorted out for 2018 — including the appropriate quarterly estimated tax payments for the current year.
