This seems like double taxation to me. Please, no answers like "because the IRS sucks, etc. I am looking for the real reason why.
2007-01-11 17:17:42 · 7 answers · asked by Mommy 3 in Business & Finance ➔ Taxes ➔ Other - Taxes
A state income tax refund is not always subject to federal tax. In many cases it is but not always.
Generally where a person itemizes and is in a state that levies an income tax, you will deduct 100% of the state income tax that was withheld for the year. For example lets say in 2005 $4500 was withheld as state income tax. Asa tax preparer I would deduct the full amount on your schedule A. I then prepare that return and you only owe $3,000 generating a $1,500 refund of state income taxes.
The $1,500 refund may or may not be subject to federal income tax on your 2006 return. To the extent that the $4,500 deduction provided you a reduction in the federal tax due, any refund to you in the subsequent year will be treated as income. If the deduction did NOT give you any benefit say because you would have owed the Alternative Minimum Tax then none of the refund is subject to federal tax.
There is a worksheet you need to complete that is included in the 1040 form booklet. Turbo Tax will do the calculation.
Look at the discussion of the tax benefit rule on page 84 in Publication 17 and page 20 in Publication 525
2007-01-12 09:53:15 · answer #1 · answered by zudmelrose 4 · 0⤊ 0⤋
Because you were not taxed by the Feberal Government on the portion you received back from the State as a refund.
Best place to go to find out why, would be to call the IRS and they can tell you for your individual case why, that's what I'd do if I wanted an exact answer.
2007-01-11 17:23:47 · answer #2 · answered by Mountain Bear 4 · 1⤊ 0⤋
If you itemized your deductions and listed your taxes paid as a deduction then the amount you received in income.
2007-01-11 17:22:20 · answer #3 · answered by mental 3 · 0⤊ 0⤋
It is only taxable if you itemized last year.
If you itemized, some of what you deducted was refunded to you by the state. Therefore, it is taxable.
Trust me, it makes sense.
2007-01-12 01:05:34 · answer #4 · answered by Wayne Z 7 · 1⤊ 0⤋
Because the Feds will totally beat the poo out of you if you don't.
Do you really, REALLY want to know? If you do, then get comfy, and watch this, because it explains everything: http://www.youtube.com/watch?v=zsZO6G7dfpI
2007-01-11 17:26:32 · answer #5 · answered by Anonymous · 0⤊ 0⤋
mommy iam hungry
2007-01-11 17:21:06 · answer #6 · answered by Yuriy 1 · 0⤊ 2⤋
Because it is "Income".
2007-01-11 17:23:03 · answer #7 · answered by David S 3 · 0⤊ 0⤋