Virginia Form 763 Schedule Adj Instructions

LINE INSTRUCTIONS FOR VIRGINIA SCHEDULE 763 ADJ

FIXED DATE CONFORMITY UPDATE FOR 2014

Virginia's Fixed Date Conformity with the Internal Revenue Code: Virginia's date of conformity with the federal enhanced Earned Income Tax Credit ("EITC") was extended to taxable years ending before January 1, 2018. Virginia will continue to allow taxpayers to claim either the Tax Credit for Low-Income Individuals or a credit equal to 20% of the Federal EITC that was claimed for the taxable year. Low-Income taxpayers may also continue to claim the portion of the Virginia Low-Income Tax Credit that is based on the federal EITC without making complex adjustments on their Virginia income tax returns.

During the 2014 Session, the General Assembly did not advance Virginia's date of conformity with the Internal Revenue Code, and the date of conformity remains January 2, 2013. Virginia will continue to disallow federal income tax deductions for bonus depreciation allowed for certain assets under Internal Revenue Code ("IRC") §§ 168(k), 168(l), 168(m), 1400L and 1400N; the five-year carryback of federal net operating loss deductions generated in Taxable Year 2008 or 2009; and federal income tax deductions for applicable high yield discount obligations under IRC § 163(e)(5)(F).

At the time these instructions went to print, the only required adjustments for "fixed date conformity" were those mentioned above. However, if federal legislation is enacted that results in changes to the IRC for the 2014 taxable year, taxpayers will be required to make adjustments to their Virginia returns that are not described in the instruction booklet. Information about any such adjustments will be posted on the Department's website at www.tax.virginia.gov.

ADDITIONS TO FEDERAL ADJUSTED GROSS INCOME

MUTUAL FUNDS

If you received federally tax exempt interest dividends from a regulated investment company (mutual fund) that invested in obligations both taxable and exempt for Virginia purposes, the entire dividend income must be entered as an addition unless you attach a statement provided by the fund that:

• details the amount of dividends you earned; and
• summarizes the prorations between exempt and taxable dividends (monthly breakdown is preferred).

A typical situation would involve a mutual fund that invests in bonds of several states, including Virginia. The interest on the bonds issued by the other states is taxable for Virginia purposes, even though exempt for federal purposes. Unless the taxpayer is able to substantiate the amount attributable to the Virginia bonds, the total amount of dividends exempt from federal taxation will be an addition on the Virginia return.

Line 1 - Interest on Obligations of Other States

Enter the interest not included in federal adjusted gross income, less related expenses to the extent not deducted in determining federal taxable income, on obligations of any state other than Virginia, or of a political subdivision of any such state unless created by compact or agreement to which this state is a party.

Line 2 - Other Additions

Enter on Line 2a any addition due to Fixed Date Conformity.

A. Bonus Depreciation - For an explanation, please see the section titled, Fixed Date Conformity Update. Enter the amount that should be added to Federal Adjusted Gross Income based upon the recomputation of allowable depreciation..............______

B. Other Fixed Date Conformity Additions from Supplemental Instructions - If you are required to make any Other Fixed Date Conformity additions, enter the total amount of such additions on this line. Also, please attach a schedule and explanation of such additions. ...................______

C. Total of Lines A and B - Enter the total of Lines A and B here and on Schedule 763 ADJ Line 2a...................______

Lines 2b - 2c - Other Additions

On Lines 2b - 2c, enter the 2-digit code listed below, followed by the amount, for any additions to federal adjusted gross income. If you have more than 2 additions on Lines 2b - 2c of Schedule 763 ADJ, enter code "00" and the total addition amount on Line 2b and attach an explanation of each addition to your return.

Attach an explanation for other additions.

Line 3 - Total Additions

Add Lines 2a, 2b and 2c and enter on Line 3 and on Form 763, Line 2.

SUBTRACTIONS FROM FEDERAL ADJUSTED GROSS INCOME

To the extent included in federal adjusted gross income, the following subtractions are allowed on the Virginia return. No amount previously excluded from FAGI can be claimed as a subtraction in computing Virginia taxable income. The same income may not be included in more than one subtraction.

Special instructions for members of the military Virginia law provides three subtractions for military servicemembers.

• military pay and allowances earned while serving in a combat zone or qualified hazardous duty area (Va. Code § 58.1-322 C 21);
• military basic pay for personnel on extended active duty for periods in excess of 90 consecutive days (Va. Code § 58.1-322 C 23); and
• wages or salaries received for active and inactive service in the National Guard of the Commonwealth (Va. Code § 58.1-322 C 11).

Servicemembers may be eligible for more than one subtraction, but the same income may not be included in more than one subtraction. For example, a servicemember may not deduct the same income for both the military basic pay subtraction and the National Guard subtraction.

MUTUAL FUNDS

If you received income from a regulated investment company (mutual fund) that invested in obligations both taxable and exempt for Virginia purposes, the entire income must be considered taxable by Virginia unless you attach a statement provided by the fund that:

• details the amount of income you earned; and
• summarizes the prorations between exempt and taxable income (monthly breakdown is preferred).

If you provide this information, enter the exempt portion of income on Line 4 or Line 6 as appropriate.

Line 4 - Income from U.S. Obligations

Enter the amount of income (interest, dividends and gain) derived from obligations or the sale or exchange of obligations of the United States and on obligations or securities of any authority, commission or instrumentality of the United States to the extent included in federal adjusted gross income, but exempt from state income taxes under the laws of the United States. This includes, but is not limited to, stocks, bonds, treasury bills and treasury notes. It does not include interest on refunds of federal taxes, equipment purchase contracts or normal business transactions.

The following is a partial list of taxable and exempt income. This list is based on the Department's analysis of federal and state law as applicable to selected organizations. For organizations not listed below, additional information must be attached showing that the income is exempt from Virginia income tax.

Line 5 - Disability Income

Enter the amount of disability income reported as wages (or payments in lieu of wages) on your federal return for permanent and total disability. On joint returns, each spouse can qualify for the deduction. Individuals can deduct up to $20,000 of disability income as defined under IRC § 22(c)(2)(b)(iii).

You - Enter YOUR subtraction on Line 5a.

Spouse, Filing Status 2 - Enter SPOUSE'S subtraction on Line 5b.

NOTE: Eligible taxpayers may claim EITHER this disability income subtraction OR the age deduction on Line 4, Form 763. If you are married filing a joint return, each spouse may claim, if eligible, either an age deduction or disability subtraction. Use the one that benefits you the most.

Line 6 - Other Subtractions

Line 6a Enter the amount if you have any subtraction due to Fixed Date Conformity.

A. Bonus Depreciation - For an explanation, please see the section titled, Fixed Date Conformity Update. Enter the amount that should be subtracted from Federal Adjusted Gross Income based upon the recomputation of allowable depreciation..._____

B.Other Fixed Date Conformity Subtractions - If you are required to make any Other Fixed Date Conformity subtractions, enter the total amount of such subtractions on this line. Also, attach a schedule and explanation of such subtractions. Enter total Supplemental Fixed Date Conformity subtractions here..______

C. Total of Lines A and B - Enter the total of Lines A and B here and on Schedule 763 ADJ, Line 6a....................______

Lines 6b - 6d - Other Subtractions

Enter the code and subtraction amount on Lines 6b - 6d. If you have more than 3 subtractions, enter Code "00" and the total amount of Other Subtractions you are claiming on Line 6b and attach to your return a list showing each subtraction along with its subtraction code and amount.

Line 7 - Total Subtractions

Add Lines 4, 5a, 5b and 6a-6d and enter the amount on Line 7 and on Form 763, Line 7.

DEDUCTIONS FROM VIRGINIA ADJUSTED GROSS INCOME

Lines 8a - 8c Deductions

On Lines 8a-8c, enter the 3-digit code, listed in the following table, in the boxes on Schedule 763 ADJ, followed by the amount, for any deductions from Virginia adjusted gross income in the categories listed below.

Other Deductions for Lines 8a - 8c If you have more than 3 deductions on Lines 8a-8c of Schedule 763 ADJ , enter the code "000" and the amount of total deductions in the first box and attach an explanation of each deduction to your return.

Line 9 - Total Deductions

Add Lines 8a through 8c and enter on Line 9 and on Form 763, Line 14.

COMPUTATION FOR TAX CREDIT FOR LOW- INCOME INDIVIDUALS OR VIRGINIA EARNED INCOME TAX CREDIT

You may be eligible to claim a Tax Credit for Low-Income Individuals if your family Virginia adjusted gross income (VAGI) is equal to or less than the federal poverty guidelines and you meet the Eligibility Requirements. You are eligible for the Virginia Earned Income Tax Credit if you claimed an Earned Income Tax Credit on your federal return. Claim the credit that benefits you the most. However, you cannot claim both credits. Please complete the entire section.

The tax credit for low-income or Virginia Earned Income Credit may NOT be claimed if you, your spouse, or any dependent claims any of the following:

• Virginia National Guard subtraction (Subtraction Code 28);
• Basic military pay subtraction (Subtraction Code 38);
• Federal and state employees subtraction for earnings of $15,000 or less (Subtraction Code 39);
• Exemption for blind taxpayers or taxpayers age 65 and over;
• the Age Deduction; or
• You are claimed as a dependent on another taxpayer's return.

To compute total annual family income you must compute the "Guideline Income" for each family member and add those amounts together.

Guideline Income is defined as federal adjusted gross income modified by the Virginia additions and qualifying Virginia subtractions that apply to full-year residents.

After the worksheet has been filled in for each person on your tax return, complete Schedule 763 ADJ, Lines 10-17.

If you and your spouse file separate returns, only one spouse may claim the Credit for Low-Income Individuals, but both may claim their proportionate share of the Virginia Earned Income Tax Credit.

Guideline Income Worksheet

The income, additions and subtractions entered on the worksheet must be shown for the entire taxable year.

11. Add Lines 5 through 10.

Line 10 - Compute Your Total Guideline Income

If more room is needed, attach a schedule with the name, SSN and Guideline Income for each additional dependent.

Your Information

Enter your name, social security number and Guideline Income. Filing Statuses 2, 3 and 4 must also complete spouse information.

Your Spouse's Information

Enter your spouse's name, social security number and Guideline Income.

All married taxpayers, regardless of filing jointly or separately, must complete this line.

Dependent(s) Information

Enter the name and social security number for each dependent claimed as an exemption on your return and, if any of your dependents had income, enter the Guideline Income for each dependent.

For Filing Status 3 (Married Filing Separately), also enter the name and social security number of your dependents not claimed as an exemption on your return and, if any of the dependents had income, enter the Guideline Income for each dependent.

Enter Total Family Guideline Income

Total the Guideline Income Worksheet for each family member (each exemption reported and from any additional schedule attached).

Line 11 - Enter Total Number of Exemptions Listed on Line 10 and on any Attached Schedule.

Enter the total number of exemptions listed on Line 10 and on any attached schedule.

Determine Eligibility for Credit for Low-Income Individuals - Using the number on Line 11 as Eligible Exemptions, compare the dollar amount on Line 10 to the Poverty Guideline below. If Line 10 amount is greater than the Poverty Guideline amount, you do not qualify for the Credit for Low-Income Individuals, Continue to Line 14.

Line 12 - Exemptions

If you are eligible based on the table above, enter the number of personal and dependent exemptions from Form 763. Do not include exemptions for age 65 or older and blind.

Line 13 - Multiply

Multiply the number of exemptions reported on Line 12 by $300. If you do not qualify for the Tax Credit for Low-Income Individuals but claimed an Earned Income Tax Credit on your federal return, enter $0 on Line 13 and proceed to Line 14.

Line 14 - Earned Income Tax Credit claimed on your federal return

Enter the amount of Earned Income Tax Credit claimed on your federal return. If you did not claim an Earned Income Tax Credit on your federal return, enter $0.

When a taxpayer using the married filing separately status computes the Virginia Earned Income Tax Credit, the taxpayer must first determine his proportion of the earned income that was used to qualify for the federal Earned Income Tax Credit. That proportion must then be multiplied by the total Virginia Earned Income Tax Credit, which is 20% of the federal Earned Income Tax Credit. The spouse may then claim his proportional share of the credit on his separate return.

Line 15

Multiply Line 14 by 20% (.20).

Line 16

Enter the greater of Line 13 or Line 15.

Line 17 - Credit

Compare the amount of tax on Form 763, Line 19, to the amount on Schedule 763 ADJ, Line 16. Enter the lower amount on Line 17. This is your Tax Credit for Low-Income Individuals. Also, enter this amount on Form 763, Line 24.

The Credit for Low-Income Individuals is a nonrefundable credit. A nonrefundable credit cannot exceed your tax liability. If you claim any credits on Form 763, Line 25 or Line 26, in addition to the Credit for Low-Income Individuals, the sum of all nonrefundable credit claimed cannot exceed your tax liability on Line 19 of Form 763.

Many low-income individuals who work and have earned income under $52,427 may also qualify for up to $6,143 in federal Earned Income Credit when filing their federal tax return! See your federal instructions or call 1-800-829-3676 to order Pub 596.

ADDITION TO TAX, PENALTY AND INTEREST

Addition to Tax for Underpayment of Tax

Even if your return results in a refund, you may owe an "addition to tax" for underpaying your withholding or estimated tax. Virginia law requires that you pay your income tax in timely installments throughout the year by having income tax withheld or making payments of estimated tax. If you do not pay at least 90% of your tax in this manner, you may be charged an addition to tax.

There are 4 (quarterly) installment periods for determining whether you underpaid your tax for the year. If your taxable year is from January 1 through December 31, your quarterly payments are due May 1, June 15, September 15, and January 15 (of the following year). Underpayments are determined as of each installment due date, so an overpayment in one quarter cannot cancel out an underpayment for a previous quarter. The addition to tax does not apply if each payment is made on time and:

• the total tax paid through withholding and timely estimated tax payments is at least 90% (66 2/3% for farmers, fishermen or merchant seamen) of the current year's tax liability (after nonrefundable credits) or 100% of last year's tax liability (after nonrefundable credits);
• the sum of the quarterly underpayments for the year is $150 or less; or
• you meet one of the exceptions computed on Form 760C or Form 760F. Attach Form 760C or 760F showing the computation.

Line 18 - Addition To Tax

Enter the amount of the addition to tax computed on Form 760C (for individuals, estates and trusts) or Form 760F (for farmers, fishermen or merchant seamen). If you underpaid your estimated income tax or had insufficient income tax withheld for the taxable year, you may owe the "addition to tax" computed on Form 760C or Form 760F.

Line 19 - Penalty

If you file your return after May 1, 2015, you may owe either a late filing penalty or an extension penalty.

Late Filing Penalty - If you file your return more than 6 months after the due date, no extension provisions apply, and you must compute a late filing penalty of 30% of the tax due with your return.

Extension Penalty - If you file your return by the extended due date and the tax due is greater than ten percent of your total tax liability, you will owe an extension penalty. The penalty is 2% per month or part of a month from the original due date of the return until the date of filing. The extension penalty cannot exceed 12% of the tax due.

Late Payment Penalty - If you file your return before the due date or within 6 months after the due date, but do not pay the tax due at the time of filing, the unpaid balance will be subject to a late payment penalty of 6% per month from the date of filing through the date of payment, up to a maximum of 30%. The late payment penalty will be assessed in addition to any extension penalty that may apply. The automatic extension provisions apply only to returns that are filed within six months from the due date. If you file your return more than six months after the due date, a late filing penalty of 30% will apply to the balance of tax due with your return.

NOTE: If you file your return after the extended due date, your extension will be void and you will owe the late filing penalty. If you file your return by the extended due date, but do not pay the tax in full, a late payment penalty will accrue on the balance of tax due. Interest accrues on any balance of tax owed with a return filed on extension, regardless of whether the balance exceeds 10% of the tax.

Line 20 - Interest

If you filed a tax due return after the filing date, even if you had an extension, you are liable for interest on the tax due amount on Form 763, Line 29, from the due date to the date filed or postmarked. To obtain the daily interest factor, please call 804-367-8031 or contact your locality.

Line 21 - Addition to Tax, Penalty and Interest

Add Lines 18 through 20. Enter here and on Form 763, Line 34.