Page 587 - TaxAdviser_2022

Examples of state ordering rules

Example A: State taxable income (partner or shareholder level)

Federal AGI $ 465,750
State adjustments (SITP) 34,250
Standard deduction (8,000)
Taxable income 492,000

State income tax due 45,000
State ordering rules
Resident state tax credit (10,000)
Estimated tax payments/withholding tax (15,000)
Credit associated with SITP (34,250)

State income tax refund 14,250
Included in federal taxable income $ 14,250
Example B: State taxable income (partner or shareholder level)

Federal AGI $ 465,750
State adjustments (SITP) 34,250
Standard deduction (8,000)

Taxable income 492,000
State income tax due 45,000
State ordering rules
Resident state tax credit (10,000)
Credit associated with SITP (34,250)
Estimated tax payments/withholding tax (15,000)
State income tax refund 14,250
Included in federal taxable income $ 0

Further guidance needed discussions surrounding the federal im- example, if the federal tax-benefit rule is
The AICPA released a comment letter pact of PTE tax payments and refunds overlooked, a taxpayer could benefit from
in October 2021 requesting further guid- is causing individual tax professionals to a large federal tax deduction for SITPs
ance on several questions posed in this interpret the notice, leading to various and fail to include the corresponding re-
article, which have yet to be addressed understandings and applications, which fundable credit in federal taxable income
20
by the IRS. The limited guidance and could negatively affect taxpayers. For in the following year.

20. Letter from Jan Lewis, CPA, chair, AICPA Tax Executive Committee, to Holly Porter, associate chief counsel, Re: Notice 2020-75, Forthcoming Regulations Re-
garding the Deductibility of Payments by Partnerships and S Corporations for Certain State and Local Income Taxes (Oct. 26, 2021).

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