Individual tax filers usually understand more about their federal tax return than their state tax return. For most filers, the federal tax obligation is more substantive than the state tax bill. However, the state tax can sometimes be trimmed. Individuals required to file an Oklahoma tax return may benefit from exploring some of the nuances of the Oklahoma personal income tax.
Each state with a personal income tax has its own set of regulations and tax forms. The tax form used by full-year residents of Oklahoma is Form 511, which is a multi-page form. Even though the specific rules differ from state to state, most of the underlying concepts and tax definitions are the same for both federal and state taxes.
As in many states, the Oklahoma tax return is prepared after the corresponding federal return is completed. A certain entry on your federal return, labeled as adjusted gross income (AGI), is used as the starting point for the Form 511 tax calculations. Before arriving at your taxable income for Oklahoma, you may be entitled to take one or more adjustments.
Tax Return Adjustments
Adjustments are necessary due to federal and state differences. For example, some individuals pay federal tax on part of their Social Security benefits. However, Oklahoma doesn't tax Social Security income. Any Social Security income included in federal AGI should be subtracted as a state adjustment. After tax is calculated on taxable income, you may be eligible for a tax credit.
Child Tax Credit and Child Care Credit
On federal income tax returns, the child tax credit and the child care credit are separate benefits. The child tax credit is a certain amount allowed as an offset to taxes, based on the number of dependents. In comparison, the child care credit is based on costs paid for services like day care. On the Oklahoma personal tax return, the two credits are combined as one.
To calculate the state credit, your federal child tax credit is compared with your federal child care credit. The Oklahoma tax credit is the greater of the two following amounts:
- 20 percent of the federal child care credit
- 5 percent of the federal child tax credit
The Oklahoma child care/child tax credit is not available to tax filers whose federal adjusted gross income is more than $100, 000.
State Earned Income Credit
Many states have their own small version of an earned income credit. Oklahoma’s earned income credit is 5 percent of the federal earned income credit. The state credit is calculated on Schedule 511-F, which is on a page of Form 511. The Oklahoma earned income credit is no longer refundable, which means that it can be used only to offset taxes that are otherwise payable.
Nonresidents and Partial Residents
Instead of Form 511, nonresidents and part-year residents of Oklahoma file Form 511NR. There is an entry space near the top of Form 511NR for the designation of residency status. The form allocates your income between income taxable to Oklahoma and income that’s not taxable to Oklahoma. Some of the tax credits may not be available to nonresident filers.
Form 511 is also used to amend an Oklahoma tax return from a prior year. A checkbox near the top of Form 511 is marked to indicate that the return is an amendment of an earlier return. One of the pages of Form 511 includes Schedule 511-H, which must be completed to provide an explanation of all changes made by the amended return.
In addition to an Oklahoma tax return, some tax filers may need to file a tax return with another state. With multiple locations, Bell Financial Services, LTD is available to prepare your federal tax return along with any state returns that are required.