Unsure if state tax refunds are taxable? Tax laws can be confusing, but don’t worry – we’re here to help! In this article, we’ll explain whether or not state tax refunds are taxable. Keep reading to learn more.
Once you’ve read this article, you’ll have a better understanding of state tax refunds and whether or not they’re taxable. This information will be helpful for your next tax return.
So let’s get into it.
Are state tax refunds taxable? In general, state and local income tax refunds are taxable if the money was deducted in a prior year and you obtained a tax benefit from the deduction. If your itemized deductions last year were greater than your standard deduction by less than the amount of the refund, part of your refund will be taxed.
Are State Tax Refunds Taxable?
Whether your state income tax refund is taxable on your federal income tax return is determined by whether you itemized your deductions (Schedule A (Form 1040)) and claimed a tax credit (Schedule I, line 27) for the money that was later refunded.
- Don’t include any of the refunds as income if you didn’t itemize your deductions on your federal tax return for the tax year in which you received the money.
- If you took an itemized deduction in a previous year for taxes paid that were subsequently refunded, you may have to report all or part of the refund as income on your tax return. Use Taxable and Nontaxable Income Worksheet 2 in Publication 525 to figure out how much of your state or local refunds should be reported on your tax return.
In general, state and local income taxes are taxable if a refund has already been given in a prior year and you received a tax benefit as a result of the deduction. If your itemized deductions last year were lower than your basic standard deduction by less than the amount of the reimbursement, the money is partially taxable.
Calculating Taxable State Tax Refunds
- Divide your state income tax refund by the total of all your itemized deduction recoveries.
- Multiply the number of taxable recoveries by the percentage in (1). This is the amount you report as a state income tax refund.
- Subtract the result in (2) above from the number of taxable recoveries.
- The result is your net deduction recovery amount. This is the amount you report as other income on line 21 of Form 1040, U.S. Individual Income Tax Return.
Your state or local income tax refund isn’t taxable if either of the following applies:
- The only itemized deductions you had on Schedule A (Form 1040) were for state and local income taxes.
- Your total itemized deductions were less than the standard deduction that would have been taken if you didn’t itemize your deductions or calculate your itemized deductions using Schedule A (Form 1040).
- Don’t report as income any state and local tax refund you received on an amended return or as a result of an audit. Only include these refunds as income in the year you would have received them had you filed a return with the correct amount, to begin with. For. You had no deductions at all.
- If you filed Schedule A (Form 1040), line 29 minus line 36 is the refund amount you must include as income.
- Don’t take the state refund out of your federal income tax refund. Report it on line 21 of Form 1040, U.S. Individual Income Tax Return. If you don’t file Form 1040, report the refund amount on Schedule 1 (Form 1040), line 21.
How To File Taxable State Tax Refunds On Your Federal Taxes?
If you must file and pay taxes on your refund, you’ll need some information to submit the state refund worksheet correctly. A few documents include:
- If you received state or other income tax refunds, you’ll need to fill out Form 1099-G from the states that issued them.
- Your previous year’s state tax return, which should include the amount of any refund you received if you did not receive a Form 1099-G
- Your prior year’s federal Form 1040 and Schedule A, show your itemized deductions.
Example
If you have received a state tax refund last year. Should You report it as income on my federal return this year?
If you itemized deductions last year and then received a refund of state or local taxes, you may have to include all or part of the refund as income on your return this year.
In general, state and local income tax refunds are taxable if the refunded tax was deducted in a prior year and you received a tax benefit from the deduction. Refunds are partially taxable if your itemized deductions last year exceeded your standard deduction by less than the amount of the refund.
State Taxes On State Tax Refunds
When you pay more taxes to your state or federal governments than is required, you get a tax refund. A refund is a money order from the government for the amount overpaid.
There are no state taxes on any state tax return refunds. You can contact your State Tax Board or Revenue Office for additional information.
If you choose to file a paper federal income tax form, complete the “Individuals” area of your 1040 and answer line 10 by entering the amount of your refund. If you filed electronically, the refund amount is included in the adjusted gross income you report online 21.
Go to the 1040 Tax form and complete the “Individuals” area. On line 10, enter the amount of your refund. If you filed electronically, this amount is included in the adjusted gross income reported on line 21. All states will issue a 1099-G showing any state tax refunds received during the year.
Conclusion
In short, if you received a state or local income tax refund this year, it’s likely that at least some of the money will be taxable. However, how much of the refund is taxable depends on how much you benefited from your itemized deductions last year. Be sure to speak with an accountant or tax specialist if you have any questions. Have a great day!