Keywords: taxes . means test .
Means Test > Income > Taxes Withholding Taxes: How are income taxes treated under the means test (actual taxes or amount 'withheld'?)20 Cases , IssueID 3 |
||||||
Ch 7 Means Test |
Ch 13 Means Test |
|||||
Topic Description:This issue often comes up in the case where taxes were withheld during the six months prior to the bankruptcy, but then are going to be refunded after the bankruptcy filing. Lines of Cases:
Topic Background / Overview:People commonly have too much tax withheld and get a refund later. |
||||||
No Ninth Circuit cases in database on this topic
income tax refunds are property of the estate to the extent they are attributable to prepetition income
income tax refunds are property of the estate to the extent they are attributable to prepetition income
Court found that Chapter 13 debtors must contribute their income tax refunds to plan payments.
"Income tax refunds are disposable income as long as the plan is in effect, and Section 1325(b)(1)(b) requires that this disposable income be used to pay unsecured creditors."
"The custom in this district of committing only one half of the tax refund to the plan is a compromise that takes into consideration debtors' inability to predict future expenses, including taxes, and debtors' motivation to retain as much money as possible for day-to-day living, thereby running the risk of under-withholding. This might occur if all the tax refund were required to be paid into the plan (as is the rule in some, if not most, districts) or it only actual taxes were allowed in determining projected disposable income. However, income tax refunds are disposable income as long as the plan is in effect, and Section 1325(b)(1)(b) requires that this disposable income be used to pay unsecured creditors. By using these refunds to shorten the plan, the debtor's proposal in this case is directing those payments to secured creditors, who are virtually the only recipients of distributions under this plan."
the amount withheld is not the appropriate way to measure a debtor's actual tax liability unless the debtor will not receive a tax refund
Tax refunds are disposable income. Court allowed the debtor to retain a portion of the money for reasonable expenses -- remainder of the refund goes to trustee.
tax refunds constitute a source of income so long as there is a realistic prospect of similar refunds in the future.
the payroll withholding amounts for taxes are not necessarily reliable, and therefore, a determination of the debtor's actual tax liability is necessary
"Since this refund represents an overpayment of payroll taxes, I agree that the 529*529 monthly payroll deduction should be reduced by $100 resulting in an increase in monthly disposable income on Form B22C from $278.91 to $378.91. The monthly plan payment proposed is $560 which exceeds the minimum required even if I were to adjust the monthly disposable income upward as requested by eCast."
bankruptcy court held that debtors were not entitled to deduct, as an average
monthly tax expense, the amounts actually withheld from their paychecks, unless debtors were willing to dedicate 50% of any tax refunds that they received to payment of unsecured creditors. The court reasoned that the presumptively correct amount to be deducted is the amount of taxes that the debtor actually paid, as evidenced by the most recent tax return filed, divided by twelve and that to rebut this presumption, debtors had to adequately document any change in their circumstances.
court held that the mere fact that the debtor had historically received substantial tax refunds, in amounts of $5,000 to $6,000 per year, did not mean that she had to adjust her current tax withholdings to increase her take home pay and to permit increase in her monthly plan payments,
x refunds are amounts overwithheld and therefore constitute additional income. Accordingly, Line 30 should reflect the taxes actually paid, and not the amount withheld.
three consolidated Chapter 13 cases in which the debtors over-withheld federal income tax and received tax refunds, but did not include the income from the tax refund in their plans as projecteddisposable income. HELD: whether debtors are above or below median income, tax expenses fall into the category of actual expenses, and thus debtors bear the burden of demonstrating that these expenses are actual, reasonable and necessary. Debtors may retain some amount of a tax refund depending on the particular circumstances in a
particular case.
Since a tax refund is not income, but a correction of the over-estimation of an expense, the Debtor here could propose to keep her tax refunds and include a deduction from current monthly income for payroll taxes actually incurred. Since a deduction for payroll taxes is not currently found on Schedule J, the Debtor could add the deduction to Schedule J or in some other analysis provided to the trustee.[6] The Debtor will have the burden of proving that the amount deducted for taxes is "actual, necessary and reasonable." In re Stimac, 366 B.R. 889 (citing Baxter v. Johnson (In re Johnson), 346 B.R. 256, 268 (Bankr.S.D.Ga.2006)).
income tax refunds are property of the estate to the extent they are attributable to prepetition income
income tax refunds are property of the estate to the extent they are attributable to prepetition income
Court found that Chapter 13 debtors must contribute their income tax refunds to plan payments.
"Income tax refunds are disposable income as long as the plan is in effect, and Section 1325(b)(1)(b) requires that this disposable income be used to pay unsecured creditors."
"The custom in this district of committing only one half of the tax refund to the plan is a compromise that takes into consideration debtors' inability to predict future expenses, including taxes, and debtors' motivation to retain as much money as possible for day-to-day living, thereby running the risk of under-withholding. This might occur if all the tax refund were required to be paid into the plan (as is the rule in some, if not most, districts) or it only actual taxes were allowed in determining projected disposable income. However, income tax refunds are disposable income as long as the plan is in effect, and Section 1325(b)(1)(b) requires that this disposable income be used to pay unsecured creditors. By using these refunds to shorten the plan, the debtor's proposal in this case is directing those payments to secured creditors, who are virtually the only recipients of distributions under this plan."
the amount withheld is not the appropriate way to measure a debtor's actual tax liability unless the debtor will not receive a tax refund
Tax refunds are disposable income. Court allowed the debtor to retain a portion of the money for reasonable expenses -- remainder of the refund goes to trustee.
tax refunds constitute a source of income so long as there is a realistic prospect of similar refunds in the future.
the payroll withholding amounts for taxes are not necessarily reliable, and therefore, a determination of the debtor's actual tax liability is necessary
"Since this refund represents an overpayment of payroll taxes, I agree that the 529*529 monthly payroll deduction should be reduced by $100 resulting in an increase in monthly disposable income on Form B22C from $278.91 to $378.91. The monthly plan payment proposed is $560 which exceeds the minimum required even if I were to adjust the monthly disposable income upward as requested by eCast."
bankruptcy court held that debtors were not entitled to deduct, as an average
monthly tax expense, the amounts actually withheld from their paychecks, unless debtors were willing to dedicate 50% of any tax refunds that they received to payment of unsecured creditors. The court reasoned that the presumptively correct amount to be deducted is the amount of taxes that the debtor actually paid, as evidenced by the most recent tax return filed, divided by twelve and that to rebut this presumption, debtors had to adequately document any change in their circumstances.
court held that the mere fact that the debtor had historically received substantial tax refunds, in amounts of $5,000 to $6,000 per year, did not mean that she had to adjust her current tax withholdings to increase her take home pay and to permit increase in her monthly plan payments,
x refunds are amounts overwithheld and therefore constitute additional income. Accordingly, Line 30 should reflect the taxes actually paid, and not the amount withheld.
three consolidated Chapter 13 cases in which the debtors over-withheld federal income tax and received tax refunds, but did not include the income from the tax refund in their plans as projecteddisposable income. HELD: whether debtors are above or below median income, tax expenses fall into the category of actual expenses, and thus debtors bear the burden of demonstrating that these expenses are actual, reasonable and necessary. Debtors may retain some amount of a tax refund depending on the particular circumstances in a
particular case.
Since a tax refund is not income, but a correction of the over-estimation of an expense, the Debtor here could propose to keep her tax refunds and include a deduction from current monthly income for payroll taxes actually incurred. Since a deduction for payroll taxes is not currently found on Schedule J, the Debtor could add the deduction to Schedule J or in some other analysis provided to the trustee.[6] The Debtor will have the burden of proving that the amount deducted for taxes is "actual, necessary and reasonable." In re Stimac, 366 B.R. 889 (citing Baxter v. Johnson (In re Johnson), 346 B.R. 256, 268 (Bankr.S.D.Ga.2006)).
All Cases A to Z
If you're not familiar with what "case law" is, and how to use it, check out Chapter 7 of Nolo's LegalResearch: How to Find and Understand the Law for a guide to how to read through a case to get the parts that matter.
Also, you need to be familiar with the concept of "jurisdiction." Here are some helpful links:
When you read a case, check to make sure that the case's decision applies to your local district. Do this by looking at which court has decided the case -- either the U.S. Supreme Court, a court of appeal (listed here in large type), or a district court (listed in small type). Your local district court judge is not bound to follow the opinion of judges from other district courts, but often they look to these cases for advice. Your local district, however, is bound to follow decisions in cases from it governing circuit court. You'll see fairly few Supreme Court case here, but those cases are also binding on all districts."
NO! NO! NO! This is a start for your research. New cases are constantly being decided. I update this when I have time. This is only a fraction of the actual published opinions out there. Dozens of cases are handed down nationwide every week. I catalog interesting ones when I have time. They are meant to serve as a starting point for your research -- NOT as a comprehensive listing of the current state of the law.