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Someone filed out their US 1040 using H&R Block Tax Software. They have under $2K tax due: less than employer withholding, so they have a refund coming.

They live in a state with sales tax but no income tax. There's a line to enter local sales tax rate (in addition to state sales tax rate) but they mistakenly entered the total sales tax rate. They e-filed. Then they noticed the mistake, and changed it, but it didn't change the refund amount. The software is also not suggesting it be refiled or a corrected 1040X be filed.

I would think that the sales tax rate would have some effect. It was a difference of about 6% in the sales tax rate. Seems like the refund amount would've changed by at least $1.

Questions:

1) Why would this not change the calculated amount of the refund? Is there some threshold beneath which sales tax rate doesn't affect anything?

2) Is there no reason to file a 1040X?

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    "There's a line to enter local income tax (in addition to state sales tax) but they mistakenly entered the total income tax rate." I am having trouble understanding what you mean. The income tax withheld by the employer would show up on the W-2, a form that is provided to him (and not something he calculates by himself). When using a tax software, the W-2 would be either imported or entered by the user line-by-line, with no need for interpretation. Also, there is no "sales tax" line on a W-2. Did he enter some lines on the W-2 wrong or something? – user102008 Apr 18 '16 at 6:35
  • @user102008 Sorry! I had a tax-induced brain malfunction writing that. I corrected it in the question. I wrote "income" in two places, when I meant "sales". In Tax Cut, it gives you an opportunity to claim state sales tax as a deduction, but according to the answer below, it's just an itemized deduction competing against the Standard Deduction, so usually just ends up being additional torment that results in no gain for most people. – Dronz Apr 18 '16 at 15:41
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    @Dronz Among people who don't usually itemize, this particular line is one that can push people over the line. If you had some very big purchase some year, claiming the sales tax may take you past the line to make itemizing worthwhile. (Also, although you're technically correct that "most" people don't itemize, it's still a pretty good fraction, greater than 35% nationwide.) – user32479 Apr 18 '16 at 21:35
  • @Brick Wow, I had no idea. I've never come anywhere near the Standard amount, and it seems like an awful lot of bookkeeping unless I had some huge itemizable expense. Interesting, thanks. – Dronz Apr 18 '16 at 22:35
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The state income/sales tax deduction is an itemized deduction, located on Schedule A. If this taxpayer didn't have enough deductions, the software would have chosen the standard deduction instead. If this is the case, then it wouldn't matter if they change the amount of the sales tax paid, because with the standard deduction, it would have no effect.

Take a look at the tax return that the software generated. Is Schedule A included?

  • Thanks. No, they took the Standard Deduction. I didn't realize it was in that category. Not likely to ever be taken into account for most people then. – Dronz Apr 18 '16 at 4:50

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