All this tax talk has me wondering

[stressedNC]

Does our refund count as part of our 6 month income? If it does we will be over the median and we can not pass the means test(yet we are negative every month on I and J). We are set to file Thursday but I will call the lawyer Monday and see if we should reschedule for Sept. 1 if it is included(it was received in Feb.). I hate calling though because to talk to the lawyer it is billed and I keep getting warned not to listen to the paralegal who is the one our questions are handled by.

We will probably be paying this year(on 80K income we have paid 250.00 YTD for federal) so I am not concerned with them having an interest in the 2009 refund since I know there won't be one.

Also if it makes a difference, I worked in 08 and we filed our taxes jointly but I no longer work and I am not actually filing bk all of our debts are in my husbands name so he is the only one actually filing even though it feels like I am since I handle everything. The refund was 1029.00 federal and 588.00 state(NC) and was used to pay other taxes, hoa dues, debt, ext.

A month of waiting is worth it if it means we aren't above the median, IMO.
Thanks,

[lrprn]

Regretfully whether you have to count your tax refund as income in your six-month lookback depends on local court custom. Fortunately most courts see the refund as money you've earned that is already included in whole or in part in your six-month lookback. However, there are a few courts that have stated the refund is income and you must count it.

If you are filing with a lawyer, then he/she is familiar with the local customs and can give you the answer to your question.

[debtmonster]

However, there are a few courts that have stated the refund is income and you must count it.

Now that's a scam if I ever heard of one. That's a double-jeopardy situation. You can only one one income. Whomever is running the show in that district is a scammer.

[PdxDavid]

Now that's a scam if I ever heard of one. That's a double-jeopardy situation. You can only one one income. Whomever is running the show in that district is a scammer.

Not sure if it is the same everywhere or not, but here in Oregon we are taxed on our federal refund the next year. Seems odd I am paying taxes on money I am getting back from overpaying my taxes. It may be just the state that taxes us on it again, but I could have swore I already paid taxes on that money when I made it the first time. Thanks taxman. You're swell.

[stressedNC]

[QUOTE=PdxDavid;307400]Not sure if it is the same everywhere or not, but here in Oregon we are taxed on our federal refund the next year. Seems odd I am paying taxes on money I am getting back from overpaying my taxes. /QUOTE]


Does Oregon tax before fed is withheld or after? Maybe they the tax after fed is withheld so you haven't actually paid taxes on it yet? If not then that is crazy!
I know we have to count our NC refund as income the following year on our Fed returns because we don't pay taxes on it when it's withheld.

[stressedNC]

Regretfully whether you have to count your tax refund as income in your six-month lookback depends on local court custom. Fortunately most courts see the refund as money you've earned that is already included in whole or in part in your six-month lookback. However, there are a few courts that have stated the refund is income and you must count it.

If you are filing with a lawyer, then he/she is familiar with the local customs and can give you the answer to your question.

Thanks! My lawyer never mentioned it being counted I just read on here a few people waiting until Sept. because of refunds putting them over the median and I got nervous. Our lawyer knew how close we were to the median and never mentioned it so it probably isn't included. I will double check on Monday just the same.

BTW If anyone has any experience in the Western District of NC with this and would care to share that would be great!
Thanks!

[justbroke]

lrprn perfectly describes the case. Unlike many others, I don't think it is a scam to say that over-holdings on your taxes, is income. Even the Districts that don't force your attorney to include it on the 6-month income line, do in fact, use a modified Means Test (B22A) which includes over and under-withholding to the IRS. This is a classic way that debtors have abused the system. Over-withholding is actually your income, just held by the IRS. It is not money that doesn't exist. It's as if it's in the Bank. There are a great deal of debtors who over-withhold and receive $12K or more in refunds each year! (I use to get $15-$20K refunds the first 3 years I owned multiple homes, because I never adjusted my withholding allowances -- now set at 25 -- to anything more than 5!) The Bankruptcy Code is pretty simple about income. It's any money received, regardless of whether it's taxable. The only exceptions are money received from a benefit paid under the Social Security Act, and certain obscure war-time benefits.

Unless you have really significant over-withholding, I would not worry about this if it puts you over the median income. Being over-the-median income has absolutely nothing to do with your eligibility for receiving a discharge in a Chapter 7. It (being under-the-median) is only a bar for the Means Test.

Trust me... even if your Trustee doesn't require you to put the average refund in as income... they are doing the backdoor calculation to ensure that you are not abusing the system. It would be way too easy for a debtor to scam the system if over-withholding wasn't accounted for. I could do it quite easily, by just reverting back to claiming 1... or even 10 -- at which point I'd get back $12K-$18K a year.

[brokeasajoke]

I filed Friday 7/31 in Western District, NC. Refunds were not added in to means test as income...

[justbroke]

I filed Friday 7/31 in Western District, NC. Refunds were not added in to means test as income...

Doesn't necessarily mean anything. However, the Trustee will do their due diligence as they are required to. If your refund from last year (2008), as well as prior years (2006-2007), wasn't of any significant amount, I don't think the Trustee will bat an eyelash. If they averages 5, 6, 7 or more thousand a year, it could peak the UST's curiosity.

The U.S. Trustee's office basically takes all your financial information, and puts it into a modified (spreadsheet) version of form B22A (at least in several Districts that I've studied). It allows them to compare "your" numbers to "their" numbers. It quickly let's them know if there is a presumption of abuse in your case.

Generally though, if you're near the median income and aren't trying to discharge more than $100K in unsecured debt... the scrutiny usually isn't there. If you're over in either category, you'll probably receive more scrutiny.

[brokeasajoke]

Mine will be interesting...

I have gotten roughly 6000 back per year. My 22A was -845.00. I adjusted my with holding @ the beginning of the year to 10 from 7. (I didn't realize I could do more than 10, my W4 says max 10...)

Anyway, my pay has been cut several times this year, that seems to be a continuing trend. As I've stated earlier, I also defaulted on 401K loans this year so I doubt I'll get any refund next year, if so it will be very small.

My debt is roughly 80,000.00. I guess I'll find out pretty soon if UST is interested. I didn't make any of the said tax related changes thinking of BK, it was all done to try to maximize take home pay in relation to the pay cuts. I didn't decide to file until mid June.

I'm not sure that any of that will matter in the long run. The lawyer doesn't seem to terribly concerned about it, needless to say I am.

[stressedNC]

Why would withholding in a different year matter for this year? What I mean is if they have withheld $250 so far this year there will not be a refund to be added back in so adding last years in doesn't make sense to me.

If they were withholding a lot this year I can completely see considering that as disposable income for this year but no one could honestly consider $250 in federal taxes 7 months into the year to be hiding/banking money.

I can see taking tax returns, because they are basically cash assets. It just doesn't make sense to me to consider it income for this year when it was already earned and considered income(and taxed as part of our gross) last year. It seems more like it should be considered hitting your savings account than income.

We can't pay our debts and can't pass the means test so as long as in isn't added into our 6 month income for determining if we have to take the means I am happy.

[stressedNC]

Brokeasajoke, Thank you, it's good to hear that it wasn't included.

If it makes you feel any better our lawyer seems very unconcerned about most of the things I am stressing about too, maybe it is a relaxed district? I mean they(the local bk lawyers) surely know what to be concerned about and what draws scrutiny.

[brokeasajoke]

What I've had to except going through this process is that this forum give me a window into the worst case scenario for each and every district. Now each district is going to have it's quirks, some have a few but none will have them all.

My lawyer was concerned about 1 thing in the whole process. I renegotiated a personal loan in early May. She was concerned that it was showing up as a new account that recent. After digging and finding it was a refinance, she told me not to sweat it. I basically got 400.00 cash and lower payment out of the deal. She felt like if anything, the only issue may be the 400.00 cash out but it's a small enough amount where if that is my only problem, so be it.

As far as the Tax with holdings...

If all things were equal from year to year, the court could take issue with your with holding and add back in to your income (decreasing line 25 on form 22A by refund amount divided by 12.) I went over all this with the attorney, she was confused that I was even bringing it up (back to your point about local districts policies here) but after we went over it, she felt like if the BK Administrator (we don't actually have UST here) was to question it, we'd be OK.

Who knows. I'll be sure to post my experiences here.

[justbroke]

Yep, in the end... your District, local rules, and even your specific Trustee will dictate what interests them. A borderline case always gets more scrutiny. A case where the debtor is discharging $100K or more (non-medical), will receive more scrutiny.

I think it's prudent to just be prepared, just as brokeasajoke did, so that if you receive such scrutiny, you have a plan to overcome any Trustee objections.

[LuciluS]

There are probably 90% of income tax returns filed which are not alike. Some of Child Care Credit, some have high real estate/property taxes, some have large mortgage interest...I think you get the picture.

So to say a Tax Return is based on Under or Over Withholding Taxes is Incorrect. My hubby claims one dependent which is Correct. I receive Social Security Disability and there are No withholding taxes taken from my monthly check. So Statements made concerning Under or Over Withholding Is Incorrect. Hubby should not file a new W-4 & increase his dependents to 2 because I receive SSD which is taxable income by the IRS.

Our refunds are from Major medical bills each year. Hubby's insurance has an out of pocket expense at $2,500 which doesn't include the cost of prescriptions or co-pays or co-insurance. I have medicare A & B & a supplemental policy which supposedly covers more than A & B and also very limited prescription coverage. Medicare doesn't have an out of pocket expense limit. In fact, with prescriptions, when you reach a certain amount (I think it is $4,000 this year) of your cost plus the insurance cost, you have to pay 100% for prescriptions.

Our tax returns do NOT have anything to do with under or withholding taxes.
Dh's W-4 is correct with a dependent of 1 as I received SSD and do not have taxes witheld so I'm liable for withholding taxes at the end of the year.

And also, nobody can predict what events will occur for the future year. As a disabled Accountant W-4's Should be completed based on the number of dependents in the family. If you have a family of 4 with husband only working, then his W-4 should reflect 4 dependents.

Luci