2007-02-09 09:33:43 · 8 answers · asked by James C 2 in Business & Finance ➔ Taxes ➔ United States
You would have to pay income tax on a state or local tax refund that you deducted last year via an itemized deduction. Federal refunds are not nor are state and local refunds that you didn't itemize last year.
Any interest received on any tax refund is taxable and should be reported as taxable interest.
2007-02-09 09:40:11 · answer #1 · answered by Lip Service 2 · 4⤊ 0⤋
You only have to pay tax on State tax refunds if you itemized deductions last year. The reason for that is that you got a deduction for the state taxes paid last year and since some of that was refunded, that deduction must be reduced this year. That makes the refund taxable income for this year.
If you did NOT itemize deductions last year, you do NOT claim your State refund as income this year.
2007-02-09 10:26:34 · answer #2 · answered by Bostonian In MO 7 · 0⤊ 1⤋
Your federal income tax refund is a return of your own money that was withheld from your pay in excess of the amount of your federal income taxes due. (It's how much you overpaid because they took too much out of your pay.) It was already included in your taxable income and is not taxed again.
The amount of state income tax that is withheld from your pay is deductable on your federal tax return. Then the following year, the state tax refund (which you already used as a deduction the previous year) is taxable.
For instance, if $1200 state income tax was withheld for 2006, you can claim a $1200 deduction on your federal taxes. If the state then gives you a $300 refund (which is how much you overpaid the state), that $300 becomes taxable income for 2007. The $900 in taxes you actually paid the state is not taxed by the feds.
2007-02-09 09:57:36 · answer #3 · answered by roxburger 3 · 0⤊ 1⤋
as lip service said, but additionally, the idea is that you are allowed a deduction for the state taxes you paid during the year. So if you deducted 1000 and received a refund of 200, then you actually only had 800 of tax expense for the year.
2007-02-09 09:47:39 · answer #4 · answered by Scott K 7 · 0⤊ 1⤋
If you itemized last year, and deducted state or local income taxes on your return, and then got a refund for part of those taxes, you haven't paid federal tax yet on that money so are required to pay it.
If you didn't itemize last year, you do NOT have to report this on your return and/or pay taxes on it. The state doesn't know whether you itemized on your federal return, so if you had a refund, they send you a form, and you decide whether you need to use it.
2007-02-09 09:45:13 · answer #5 · answered by Judy 7 · 0⤊ 2⤋
Blame the Congress for enacting tax cuts effective to tremendous corporations. do not blame GE for utilising each lawful deduction. they'd loss carryovers from previous years and potential credit. i'm ill of the misuse of the note socialist. the historic Egyptians amassed taxes, outfitted public monuments and gave loose bread to the unfavorable 5000 years before the note grow to be ever invented.
2016-12-03 23:19:57 · answer #6 · answered by rieck 4 · 0⤊ 0⤋
if you want any more information go for the tax filing sites. these online efiling sites will make you file your taxes with deductions. here are some sites.
2007-02-09 21:55:13 · answer #7 · answered by Anonymous · 0⤊ 0⤋
yeah, what lip service said. because the government holds back so much, and then you get some back, it is considered income that you have to report.
2007-02-09 09:50:53 · answer #8 · answered by motorized vehicle 3 · 0⤊ 1⤋