JEFFERSON CITY - If you itemized deductions on your IRS forms in 1995 or 1996, you'll have to give some of your Hancock Amendment refunds to the feds.
Your Hancock refund is federally taxable if you itemized because that refund is for state taxes that you had deducted from your federal taxable income back in 1995 and/or 1996.
Missouri has completed sending out the first round of refund checks owed to taxpayers under the state constitution's revenue limit known as the Hancock Amendment.
A total of $376 million was mailed during the past two months to 2.4 million taxpayers because Missouri exceeded the revenue limit in 1995 and 1996. Taxpayers received about 5 percent of the income taxes they paid those two years.
The state also exceeded the limit in 1997 by an estimated $319 million. Another round of refund checks will be mailed sometime this fall, said Kay Dinolfo, Revenue Department spokesperson.
The department and the Internal Revenue Service give different percentages of the refund that must be reported. Dinolfo said 41 percent, but the IRS is using 43 percent, said Rollie Woods, an IRS spokesman in St. Louis.
Don't expect you can just forget about this issue and the feds won't know any better. Just the opposite -- the state is telling the IRS the size of every Hancock refund given to taxpayers who itemized in 1995 or 1996.
The 650,000 or so taxpayers who deducted state income taxes paid during those two years will have to report the correct percentage of their refund checks on their 1998 federal tax forms. Dinolfo said the state will send taxpayers a 1099-G form early next year with this information. A copy of the form, which identifies the size of your refund, will be sent to the IRS.
Using the IRS figure, a taxpayer in the 20 percent bracket who itemized deductions in 1995 and 1996 and received a $100 Hancock refund would have to report $43 of it next year. He would owe $8.60 in federal income taxes.
Woods said some taxpayers might be unaware they'll have to pay taxes on their Hancock refunds.
"I think it will probably come as somewhat of a shock to them," Woods said. "But they've been having to report state income tax refunds for a number of years anyway."
Sen. Jim Mathewson, D-Sedalia, sponsored the law that established the mechanism for Hancock Amendment refunds. He said he expected the feds would come collecting.
"I can write state law," he said, "but I can't change the IRS Code."
Mathewson said he itemized deductions and will have to pay some federal taxes on his Hancock refunds. It would be wonderful if the refunds could be tax free, he said, but that would require a change in federal law.
Taxpayers who did not itemize deductions on their federal income tax forms in 1995 and 1996 will not have to report their refund checks to the IRS, Dinolfo said.
Missouri has a Web site that lists the recipients of checks that have been returned by the U.S. Postal Service. If you have moved in the past year and think you are due a refund check, visit http://www.state.mo.us/dor/mainframe.htm or call the Revenue Department at 573-751-3391.
This is the first time Missouri had to issue refunds under the Hancock Amendment, which voters approved in 1980.