Latest News

Are State Tax Refunds Taxable?

0

Know more about how different federal tax situations might apply to your state tax refunds.

Author:

TurboTax

Publish date:

Apr 2, 2022 7:00 AM EDT

Shutterstock

Know more about how different federal tax situations might apply to your state tax refunds.

For those who itemize their deductions, it’s one of the stranger parts of the tax code. First, you get to take a deduction of your state and local taxes, then all of a sudden the next year you get a Form 1099-G from your state and you’re paying taxes on your state and local tax refunds. So, why is this happening? What gives?

Our TurboTax Live experts look out for you. Expert help your way: get help as you go, or hand your taxes off. You can talk live to tax experts online for unlimited answers and advice OR, have a dedicated tax expert do your taxes for you, so you can be confident in your tax return. Enjoy up to an additional $20 off when you get started with TurboTax Live

Before we go into that, know that there are times when your state and local tax refund is not taxable – we’ll dive into this scenario first.

A general rule of thumb: If you didn’t deduct state and local income taxes last year, you don’t need to pay taxes on your state and local tax refund this year. For instance, if you didn’t itemize your deductions last year and instead you took the standard deduction, then your state tax refund from the previous year is tax-free this year.

Scroll to Continue

Maximize your deductions and get every tax break you qualify for when you file your taxes with TurboTax Deluxe. We’ll search over 350 tax deductions and credits to make sure you get the maximum refund possible. Start for free, and get up to an additional $10 off TurboTax Deluxe when you file. 

Sales Tax Deducted, But Not State Income Tax?

There’s an important note to consider in regards to sales tax versus state and local income tax. On last year’s return, if you itemized your deductions and were able to deduct your sales tax and not your state and local income taxes, then your previous year’s state refund is not taxable when you file this year.

If you deducted your state and local income taxes last year and also received a state refund last year, then your state tax refund that you received from the previous year may be taxable.

Don’t worry about knowing these tax rules, TurboTax will ask you simple questions about you and give you the tax deductions and credits you’re eligible for based on your answers. If you have questions, you can connect live via one-way video to a TurboTax Live tax expert to get your tax questions answered. TurboTax Live tax experts are available in English and Spanish, year-round and can also review, sign, and file your tax return.

Tesla Proposes a Dividend (Not Really). TJX and PNC Announce Payout Hikes (for Real).

Previous article

U.S. NTSB helps China download voice record of crashed Boeing jet

Next article

You may also like

Comments

Leave a reply

Your email address will not be published. Required fields are marked *

More in Latest News