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URL:  http://boards.fool.com/do-capital-gains-affect-the-level-of-state-income-16168246.aspx

Subject:  Re: Capital Gains and State Income Taxes Date:  11/26/2001  12:57 PM
Author:  lorenzo2 Number:  55468 of 121177

Do capital gains affect the level of state income tax liability? And if so, if I have a large capital gain for 2001, should I increase my state income tax withholding? If I underpay, will there be a large penalty?

It would be helpful to know what state you're talking about. Here's how it is in my state:

- Capital gains do indeed affect state tax liability; the state takes cap gains/losses figure right off the federal return, and a big gain means you pay more.

- Re your withholding, it depends on when you had the gain. As with the federal govt, my state tax is pay-as-you-go; if you have a big gain in the first or second quarter, you need to make a payment then.

- You bet there's a penalty if you're seriously underpaid! Again, my state does it by quarters, so a late gain can be fixed by a last-quarter payment.

My guess is that most states are similar. Look at your state return from last year - it's quite likely that you'll see cap gains somewhere, although it may be hidden in AGI copied from your federal return. And somewhere near the end, you'll probabably see something about a penalty...
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