W. Va. Code R. § 110-21-12

Current through Register Vol. XLI, No. 49, December 6, 2024

Section 110-21-12 - West Virginia Adjusted Gross Income Of Resident Individual

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.

W. Va. Code R. § 110-21-12