State Taxes vs. Federal Taxes (collector, business, electronically, accept)

[Roxana Lee]

Do banks report information to the state tax boards?

I noticed that all communication that I get from the banks (1099's, etc) always state that the information is being supplied to the IRS but nowhere does it ever say that the information is being supplied to the state tax board.

Is the only way that the state tax board knows about ALL of our tax information via the federal return that we have to include when we do file our state?


Thanks

[Thepreacherswife]

The IRS and state revenue agencies routinely share information. 1099 information is almost exclusively computer-based these days, and often when the filing is made with the IRS the same information goes to the states.

[janetvj]

As an ex-tax collector for a state agency I can assure you that this information is reported to the state as well as the IRS.

[Roxana Lee]

Originally Posted by janetvj

As an ex-tax collector for a state agency I can assure you that this information is reported to the state as well as the IRS.

why do we have to include a copy of our federal tax return then if the information is already provided?

[janetvj]

Originally Posted by Roxana Lee

why do we have to include a copy of our federal tax return then if the information is already provided?

In my state you do not have to include it. All tax relevant information (W-2, 1099, 1098, etc.) is required to be reported electronically to the tax collector by the provider. The exception is very small businesses who may not have the capability to report it that way, but that will also be coming to an end in the not-to-distant future.

It's possible that your state has not upgraded to the technology available to perform its own matches. In my state, the policy is to accept and process the returns as filed (with certain exceptions...for instance if the information reported is outside set norms). The information reported on the return is then matched on the back end to the information reported by the employer or bank, etc. If there are discrepancies, any overpayment of a refund or underpayment of tax will be assessed plus interest and penalty. And generally the agency has 3 years to do this (longer if there is fraud involved).