Question

As to those states that impose an income tax, complete the following:

a. Differentiate a "piggyback" approach and "decoupling". For state income tax purposes, "piggyback" means using the By "decoupling," a state decides allow a particular Federal provision (e.g., exclusion, deduction, credit) for state income tax purposes.
b. Use of IRS audit results as part of a state tax audit. States use IRS audit results to identify errors that might also exist on the taxpayer's state tax return.
c. Credit for taxes paid to other states. Most states their residents some form of tax credit for income taxes paid to other states.

Answer 1

For state income tax, "piggyback" refers to states using federal tax details in their calculations, whereas "decoupling" is when states choose not to follow certain federal tax provisions. States often use IRS audit results to adjust state taxes and usually offer credits for taxes paid to other states.

Step-by-step explanation:

For state income tax purposes, "piggyback" means a state is utilizing the federal tax return figures as a basis for its own income tax computation, essentially "piggybacking" on the federal tax structure. On the other hand, "decoupling" refers to a state deciding not to follow a particular federal provision, such as an exclusion, deduction, or credit, for its state income tax calculations.

State Use of IRS Audit Results: States commonly use IRS audit results to identify discrepancies that may also be present in a taxpayer's state tax returns, potentially leading to adjustments in state tax obligations.

Credit for Taxes Paid to Other States: Most states offer their residents a form of tax credit for income taxes paid to other states, to mitigate the issue of double taxation at different state levels.