Taxed on tax returns? (refund, deduction, taxable, withholding)

[country pride]

Wow, now I know we're in trouble. Someone told me that they already did their taxes and they are being taxed for last years tax returns...what the heck is up with that? Youre being taxed on something youve already paid taxes on? They couldnt understand it either but both tax people they went to told them that its a new thing now. WTFreakin heck??
I know in Az, if youre a food server, its bad enough the state takes away already 10% of your tips according to your ticket sales in meals...so whether you made 30 bucks in tips or not, if you sold 300 bucks in meals, youre going to be taxed on that. Plus you get taxed again on your payroll checks! Not that making only 2.25 as a food server in Az is pathetic enough.
Im still trying to figure out how the heck our govt can tax us on last years tax returns...am I missing something here??

[qdogfball]

The IRS may want you to include any State refunds from last yr in this years income, if you itemized deductions.

www.360financialliteracy.org (http://www.360financialliteracy.org/Life+Stages/Career/FAQs/Taxes/I+received+a+state+tax+refund+last+year.++Must+I+i nclude+that+amount+as+income+on+my+federal+return. htm - broken link)


I received a state tax refund last year. Must I include that amount as income on my federal return this year?

Answer: It depends on several factors, the most important of which is whether you itemized deductions on your federal income tax return last year. If you did not itemize deductions on your federal tax return last year, do not report any of the refund as income.
However, if you itemized deductions last year and then received a refund of state or local taxes, you may have to include all or part of the refund as income on your return this year. In general, state and local income tax refunds are taxable if the refunded tax was deducted in a prior year and you received a tax benefit from the deduction. Refunds are partially taxable if your itemized deductions last year exceeded your standard deduction by less than the amount of the refund.

That is the only thing I could come up with that resembles your question.

[janetvj]

Your question is difficult to understand, but if I'm reading it right then qdogfball has correctly answered it. If you itemized deductions on your 2008 return, then you deducted the amount of state income tax withheld and did not include that in your income. So you did not pay any tax on that portion of your income in 2008. If some of the state tax withheld was then refunded to you, it is now considered income in 2009 (the year you received the 2008 income). So now you have to pay tax on it.

If you did not itemized deductions in 2008, you do not have to add your state refund back to your income for 2009, because you never deducted it in the first place so you paid tax on it then.

As for the rest of your question, withholdings are based on what you are expected to earn during the year. When you file your 2009 return, you will report what you actually earned. So in your example, if in fact you did not earn $30 in tips on $300 sales of food, any tax withheld over and above what you actually owe will be refunded. So lets assume instead of $30 you actually earned $25, but tax was withheld on the basis that you earned $30. When you report your actual income of $25 you will receive a refund of the difference.

EDIT: In reading through other threads I think the confusing part of this is in the OP's (and others') use of the word "return". The "return" is the form that you file. The money you get back is called the "refund". So you don't receive a tax return, you file a tax return. You receive a refund.