Current through Register Vol. XLI, No. 38, September 20, 2024
12.1. General. -
The West Virginia adjusted gross income of a resident individual means his
federal adjusted gross income as defined in the laws of the United States for
the taxable year with certain modifications. These modifications relate to
items which are treated differently under the West Virginia Personal Income Tax
Act than under the United States Internal Revenue Code of 1986, as amended.
Subsection 12.2 below lists the modifications which increase West Virginia
adjusted gross income in comparison with federal adjusted gross income, while
Subsection 12.3 below lists the modification items which in such comparison
reduce the West Virginia adjusted gross income. When the net amount of all
applicable modifications, as set forth under W. Va. Code ''11-21-12 and
11-21-12a and Section 12b of these regulations, is added to or subtracted from
federal adjusted gross income, the result is the taxpayer's West Virginia
adjusted gross income.
12.1.1. Depreciation.
- West Virginia follows the federal rules of depreciation; therefore, the
depreciation of property for federal income tax purposes by methods permitted
under the laws of the United States relating to the determination of income
will be reflected automatically in West Virginia adjusted gross income, without
modification, to the extent reflected in the taxpayer's federal adjusted gross
income.
12.2.
Modifications Increasing Federal Adjusted Gross Income. - The following items
are to be added to federal adjusted gross income, unless already included
therein, in arriving at the West Virginia adjusted gross income of a resident
individual:
12.2.1. Interest income on
obligations of any state other than the State of West Virginia, or interest
income on obligations of a political subdivision of any state other than the
State of West Virginia unless created by compact or agreement to which West
Virginia is a party.
12.2.1.1. The amount to
be added to federal adjusted gross income for the purposes of Subsection 12.2.1
is the gross amount of such interest, without reduction for incidental expenses
incurred by the taxpayer, including, but not limited to custodian fees,
investment advisory fees and other related expenses.
12.2.1.2. Example. - The gross amount of
interest received by a resident individual on bonds of the State of California
must be added to his federal adjusted gross income in arriving at his West
Virginia adjusted gross income because this interest is subject to West
Virginia income taxation but not to income taxation under federal law. If a
resident individual receives interest income on obligations of the State of
West Virginia, the interest is not subject to West Virginia income taxation
because interest income on West Virginia obligations is specifically excluded
from taxation by the provisions of the West Virginia Personal Income Tax
Act.
12.2.1.3. Interest On Zero
Coupon Bonds. - The amount to be added to federal adjusted gross income in the
case of a zero coupon bond issued by any state other than the State of West
Virginia, or interest on obligations of a political subdivision of any state
other than the State of West Virginia shall be accrued ratably over the time
period to maturity.
12.2.1.3.a. Example. - X,
a resident of Elkins, West Virginia, purchases zero coupon public purpose bonds
issued by the City of Columbus, Ohio. These bonds were purchased for fifteen
hundred dollars ($1500) and mature in twenty (20) years at which time these
bonds will pay their face value of four thousand dollars ($4000) to the
investor. These bonds are tax-exempt for federal income tax purposes. For
purposes of West Virginia's personal income tax, the holder of these bonds must
recognize interest income through the following formula:
Face Value Less Purchase Price Years To Maturity
Thus, X will have an increasing modification of one hundred
twenty-five dollars ($125) ($4,000 - $1,500) . 20 = $125.
12.2.2. Interest or
dividend income on obligations or securities of any authority, commission or
instrumentality of the United States, which the laws of the United States
exempt from federal income tax but not from state income taxes.
12.2.3. Interest on indebtedness incurred or
continued to purchase or carry obligations or securities the income from which
is exempt from West Virginia personal income tax, to the extent deductible in
determining federal adjusted gross income.
12.2.4. The amount of a lump sum distribution
received after December 31, 1989 for which the taxpayer has elected under
Section 402(e) of the Internal Revenue Code of 1986, as amended, to be
separately taxed for federal income tax purposes.
12.3. Modifications Reducing Federal Adjusted
Gross Income. - The following items are to be subtracted from federal adjusted
gross income in order to properly compute the West Virginia adjusted gross
income of a resident individual:
12.3.1.
Interest income on obligations of the United States and its possessions, to the
extent includible in gross income for federal income tax purposes.
12.3.1.1. Example. - Interest on United
States savings bonds is subject to federal income tax but not to state income
tax. Therefore, the amount of such interest should be subtracted from federal
adjusted gross income in computing West Virginia adjusted gross
income.
12.3.2. Interest
or dividend income on obligations or securities of any authority, commission or
instrumentality of the United States or of the State of West Virginia to the
extent includible in gross income for federal income tax purposes but exempt
from state income taxes under the laws of the United States or of the State of
West Virginia, including federal interest or dividends paid to shareholders of
a regulated investment company under Section 852 of the Internal Revenue Code.
12.3.2.1. Example. - Dividend income received
from Federal Reserve Banks for stock issued before March 28, 1942 should be
subtracted from federal adjusted gross income. Also, interest on obligations of
the Home Owner's Loan Corporation should be subtracted from federal adjusted
gross income as a modification item in computing West Virginia adjusted gross
income of a resident individual because an Act of Congress exempts this
interest from state income taxation but not from federal income taxation.
However, interest income received from a Federal Savings and Loan Association
is not a proper modification and is taxable by West Virginia.
12.3.3. The amount of any refund
or credit for overpayment of income taxes imposed by West Virginia, or any
other taxing jurisdiction, to the extent properly included in gross income for
federal income tax purposes.
12.3.3.1. This
modification applies to any refund of income taxes which was actually included
in federal adjusted gross income, whether the refund represented West Virginia
income taxes, or the income taxes of another state, a political subdivision of
any state or any foreign government.
12.3.3.2. This modification does not include
any portion of the total refund which represents interest received. Such
interest whether received in connection with a state, federal or other tax
refund, is not exempt from tax because it is paid on a claim against the
particular government, rather than paid on an obligation thereof arising from
the exercise of its borrowing powers.
12.3.4. To the extent includible in gross
income for federal income tax purposes, the first (1st) two thousand dollars
($2,000) of annuities, retirement allowances, returns of contributions and any
other benefit received under the West Virginia Public Employees Retirement
System, the West Virginia State Teachers Retirement System, all forms of
military retirement, including regular armed forces, reserves and national
guard and any federal retirement system to which Title
4 U.S.C.
111 is applicable, including survivorship
annuities derived from any of the foregoing.
12.3.5. To the extent includible in gross
income for federal income tax purposes, all retirement income received in the
form of pensions and annuities under any West Virginia police, West Virginia
firemen's retirement system or the West Virginia Department of Public Safety
Death, Disability and Retirement fund, including any survivorship annuities
derived from any of the foregoing.
12.3.6. Federal adjusted gross income in the
amount of eight thousand dollars ($8,000) received from any source by any
person who has obtained the age of sixty-five (65) on or before the last day of
the taxable year or by any person certified by proper authority as permanently
and totally disabled, regardless of age, on or before the last day of the
taxable year, to the extent includible in federal adjusted gross income for
federal tax purposes: Provided, That if a person has a medical certification
from a prior year and is still permanently and totally disabled, the Tax
Commissioner shall accept as proof of disability either a copy of the original
medical certification or a copy of the form filed for the federal disability
income tax exclusion.
12.3.6.1. Limitations
On Application Of Subsection 12.3.6 Modification. - No eight thousand (8,000)
dollar deduction for having attained the age of sixty-five (65), or for
disability, shall be allowed where any one or combination of the item
modifications set forth in the following Subsections 12.3.6.1.a through
12.3.6.1.d total eight thousand dollars ($8,000) or more per person. Where the
total of the item modifications set forth in the following Subsections
12.3.6.1.a through 12.3.6.1.d is less than eight thousand dollars ($8,000) per
person, the total deduction allowed for all gross income received by such
person for age, or disability, shall be limited to the difference between eight
thousand dollars ($8,000) and the sum total of the specified item
modifications.
12.3.6.1.a. The modification
for interest income on obligations of the United States and its possessions as
detailed under Subsection 12.3.1 of this regulation.
12.3.6.1.b. The modification for interest or
dividend income on obligations or securities of any authority, commission or
instrumentality of the United States, or of the State of West Virginia, as
detailed under Subsection 12.3.2 of this regulation.
12.3.6.1.c. The two thousand (2,000) dollar
modification for annuities, retirement allowances, returns of contributions and
any other benefit received under the West Virginia Public Employees Retirement
System, the West Virginia State Teachers Retirement System, all forms of
military retirement and any federal retirement system to which Title
4 U.S.C.
111 is applicable, including survivorship
annuities derived from any of the foregoing, as detailed under Subsection
12.3.4 of this regulation.
12.3.6.1.d. The modification for all
retirement income received in the form of pensions and annuities under any West
Virginia police or firemen's retirement system or the West Virginia Department
of Public Safety Death, Disability and Retirement Fund, including survivorship
annuities derived from any of the foregoing, as detailed under Subsection
12.3.5 of this regulation.
12.3.6.2. Examples Of Limitations On
Application Of Subsection 12.3.6 Modification.
Example 1. - The taxpayer, a resident of West Virginia for
income tax purposes, is a retired police officer, sixty-nine (69) years of age,
who, during tax year 1989, received a twelve thousand (12,000) dollar pension
from a West Virginia police retirement system. This taxpayer is entitled to
exclude his total pension income in determining his West Virginia adjusted
gross income pursuant to W. Va. Code '11-21-12(c)(6)
and Subsection 12.3.5 of this regulation. Because the taxpayer's retirement
income exceeds eight thousand dollars ($8,000), he is not permitted any
decreasing modification for having attained the age of sixty-five (65).
Example 2. - The taxpayer, a resident of West Virginia for
income tax purposes, is a retired teacher who qualifies as permanently and
totally disabled. This taxpayer's income for tax year 1989 consists of twelve
thousand dollars ($12,000) in retirement income from the West Virginia State
Teachers Retirement System, and three thousand dollars ($3,000) in interest
income from United States Savings Bonds. In computing this taxpayer's West
Virginia adjusted gross income two thousand dollars ($2,000) of the twelve
thousand (12,000) dollar teachers retirement system income will be excluded
pursuant to W. Va. Code '11-21-12(c)(5)
and Subsection 12.3.4 of this regulation and all of the three thousand dollars
($3,000) of interest income will be excluded pursuant to Subsection 12.3.2 of
this regulation. Because this taxpayer is disabled, he is potentially entitled
to modify his adjusted gross income by eight thousand dollars ($8,000). The
amount of the decreasing modification for disability is, however, restricted
for this taxpayer by the application of the limitation set forth under
Subsection 12.3.6.1 of this regulation. Therefore, the taxpayer's disability
modification is three thousand dollars ($3,000) because this is the difference
between eight thousand dollars ($8,000) and the sum of the modifications for
retirement income and interest income.
12.3.7. Federal adjusted gross income in the
amount of eight thousand dollars ($8,000) received from any source by the
surviving spouse of any person who had attained the age of sixty-five (65) or
who had been certified as permanently and totally disabled to the extent
includible in federal adjusted gross income for federal income tax purposes.
12.3.7.1. Limitations On Application Of
Subsection 12.3.7 Modification. - No eight thousand (8,000) dollar deduction
for being the surviving spouse of a person who had attained the age of
sixty-five (65) or who had been qualified as disabled shall be allowed where
any one or combination of the item modifications set forth in the following
Subsections 12.3.7.1.a through 12.3.7.1.e total eight thousand dollars ($8,000)
or more. Where the total of the item modifications set forth in the following
Subsections 12.3.7.1.a through 12.3.7.1.e is less than eight thousand dollars
($8,000) per person, the total deduction allowed for all gross income received
by such surviving spouse shall be limited to the difference between eight
thousand dollars ($8,000) and the sum of the specified item modifications.
12.3.7.1.a. The modification for interest
income on obligations of the United States and its possessions as detailed
under Subsection 12.3.1 of this regulation.
12.3.7.1.b. The modification for interest or
dividend income on obligations or securities of any authority, commission, or
instrumentality of the United States, or of the State of West Virginia, as
detailed under Subsection 12.3.2 of this regulation.
12.3.7.1.c. The two thousand (2,000) dollar
modification for annuities, retirement allowances, returns of contributions and
any other benefit received under the West Virginia Public Employees Retirement
System, the West Virginia State Teachers Retirement System, all forms of
military retirement and any federal retirement system to which Title
4 U.S.C.
111 is applicable, including survivorship
annuities derived from any of the foregoing as detailed under Subsection 12.3.4
of this regulation.
12.3.7.1.d. The
modification for all retirement income received in the form of pensions and
annuities under any West Virginia police or firemen's retirement system or the
West Virginia Department of Public Safety Death, Disability and Retirement
Fund, including survivorship annuities derived from any of the foregoing, as
detailed under Subsection 12.3.5 of this regulation.
12.3.7.1.e. The eight thousand (8,000) dollar
modification for any person who has attained the age of sixty-five (65) or
qualified as disabled as detailed under Subsection 12.3.6 of this
regulation.
12.3.7.2.
Surviving Spouse Defined. - For purposes of W. Va. Code '11-21-12
and Section 12 of these regulations, surviving spouse means a taxpayer whose
spouse died during the taxable year prior to the taxable year for which the
annual return is being filed, and who has not remarried at any time before the
end of the taxable year for which the annual return is being filed.
12.3.7.2.a. During the tax year in which the
death of a spouse occurs, either a joint income tax return or separate income
tax returns will be filed, and any applicable modifications to be claimed will
not be affected by the death of the spouse.
12.3.7.2.b. The surviving spouse modification
is a one time modification which is to be claimed on the annual income tax
return in the year following the year in which the death of the spouse
occurs.
12.3.7.2.c. No modification
is permitted under Subsection 12.3.7 of this regulation where a spouse
remarries at any time prior to December 31 of the tax year in which the
surviving spouse modification may be claimed.
12.3.7.3. Examples Of Limitations On
Application Of Surviving Spouse Modification.
Example 1. - The taxpayer, a resident of West Virginia for
income tax purposes, is a surviving spouse (as defined in Subsection 12.3.7.2)
of a person who had attained the age of sixty-five (65). This taxpayer's income
for tax year 1989, the year in which the one time surviving spouse modification
is applicable, consists of a survivorship annuity in the amount of nine
thousand dollars ($9,000) from a West Virginia firemen's retirement system and
wages in the amount of twelve thousand dollars ($12,000). This taxpayer is
entitled to exclude the total amount of the West Virginia firemen's retirement
system survivorship annuity in determining her West Virginia adjusted gross
income pursuant to W. Va. Code '11-21-12(c)(6)
and Subsection 12.3.5 of this regulation. Because the taxpayer's decreasing
modification for the survivorship annuity exceeds eight thousand dollars
($8,000), no modification is permitted for being the surviving spouse of a
person who had attained the age of sixty-five (65).
Example 2. - The taxpayer, a resident of West Virginia for
income tax purposes, is a surviving spouse (as defined in Subsection 12.3.7.2)
of a person who had been certified as permanently and totally disabled. This
taxpayer's income for tax year 1989, the year in which the one time surviving
spouse modification is applicable, consists of thirty thousand dollars
($30,000) in wages and two thousand dollars ($2,000) of interest income from
United States Savings Bonds. In computing West Virginia adjusted gross income,
a two thousand (2,000) dollar decreasing modification will be made pursuant to
Subsection 12.3.1 of this regulation for the interest income. Thus, the
taxpayer is entitled to a six thousand (6,000) dollar decreasing modification
for being the surviving spouse of a disabled person because this is the
difference between eight thousand dollars ($8,000) and the sum of the
decreasing modification for interest income on obligations of the United
States.
12.3.8.
The amount of any lottery prize awarded by the West Virginia State Lottery
Commission to the extent properly included in gross income for federal income
tax purposes.
12.3.9. Any other
income which West Virginia is prohibited from taxing under the laws of the
United States.
12.4.
Modification For West Virginia Fiduciary Adjustment. - Where a resident
individual is a beneficiary of an estate or trust, his federal adjusted gross
income shall be increased or decreased (as the case may be) by his share of the
West Virginia fiduciary adjustment applicable to the estate or trust.
12.4.1. This fiduciary adjustment is the net
amount of modifications relating to estate or trust items of income, gain, loss
or deduction as computed by the fiduciary on the return for the estate or
trust. The fiduciary is responsible for allocating to each beneficiary his
proportionate share of the fiduciary adjustment. (See Section 19 of these
regulations).
12.4.2. Each
beneficiary, on his individual West Virginia Personal Income Tax Return is
required to apply his share of the fiduciary adjustment as a modification of
his federal adjusted gross income in order to determine his West Virginia
adjusted gross income.
12.5. Partners And S Corporation
Shareholders. - For the amounts of modifications to be made by a resident
partner or resident S corporation shareholder which relate to items of income,
gain, loss or deduction of a partnership or S corporation in determining West
Virginia adjusted gross income, see Sections 17 and 17a of these
regulations.
12.6. Husband And
Wife. - Where a husband and wife determine their federal income tax liability
on a joint return but determine their West Virginia income tax liability for a
particular tax year on separate returns, they shall determine their West
Virginia adjusted gross incomes in the same manner as if the federal adjusted
gross income of each had been determined on separate federal returns.
