Where do I report on the 1040 interest income from a State Tax Refund?

Question

Is it treated like interest from an investment on the Schedule B?

Answer 1

Yes.

Answer 2

Exactly. Its reported in the same way you would report any other interest income - Schedule B of Form 1040; show it as State of --------- and the amount.

A word to the wise:

Be careful in reporting state and local tax refunds. Why?

If you receive a state and local refund in the current year, check to see if you itemized your state and local taxes (Schedule A) in the prior tax year. If you did not, the state and local tax refund is NOT taxable in the current year. The reason is this: You did not receive an "economic benefit" in the prior year, therefore, the collection of a state and local refund in the current year is not
taxable.

If that is the case, attach a schedule to the back of the tax return showing the total amount per the 1099 you received; then on the next line show (Less) No
Economic Benefit for Prior Tax Year. It would look something like this:

State Refund Per 1099 $ 1,500.00
(Less) No Economic Benefit In Prior Tax Year (1,500.00)

Taxable Portion 0.00

Answer 3

Yes, just enter it on Schedule B, or include it on the line for taxable interest (8a on Form 1040) if you are not required to file Schedule B.

Answer 4

Yes, on schedule B where you'd put other interest like from a bank account.

Answer 5

Miscellaneous income. It is not interest. It is taxable income because it was deducted to start with.