Taxes are withheld in anticipation of taxes owed. If I have overpaid my taxes for last year by lets say 2000.00 why do i have to claim that as income this year?
In reality they are just returning what is mine from last years income. If i made 50,000 and paid 12000 in taxes and am due a 2000 refund i have no underreported my income for the year i have merely overpaid my taxes. I am only getting back what was already mine.
Put another way, if My tax liability is 10,000 and I pay 10000 then i owe nothing and they owe me nothing. At the end of the year I have taken home 40000.
On the other hand if i paid in 12000 then they owe me 2000 and I am merely getting back my 2000 in overpaid taxes and essentially still only taking home my original 40,000
2007-06-01 11:32:01 · 5 answers · asked by winetaster6 2 in Business & Finance ➔ Taxes ➔ United States
You are not taxed on your federal refund. If you itemized your deductions in a previous year and deducted your state withholding then you received a federal tax benefit through that deduction. If, in the end, you receive a state refund it means that you took too large of a deduction the previous year so you need to include that amount in your federal taxable income the following year.
For instance, let's say that I had $1000 withheld in state income tax. I file my federal return and I deduct the full $1,000. When I prepare my state return let's assume that I only owe $700 in state taxes so I receive a refund of $300. Because my actual state taxes were only $700 but I deducted $1000 in the previous year I need to include the $300 refund in this years income.
2007-06-01 12:31:08 · answer #1 · answered by Anonymous · 2⤊ 0⤋
You do NOT claim a federal tax refund from last year as income the next year. If someone told you that you do, they're wrong.
If you had a state or local refund, AND you itemized the previous year and claimed the taxes as an itemized deduction, then you do have to claim the state or local refund as income the following year, since you deducted too much the previous year.
2007-06-01 23:17:40 · answer #2 · answered by Judy 7 · 2⤊ 0⤋
The first poster is correct. The only time you will get a 1099-G is for state tax refunds. Even then, it's only taxable if you itemized on your federal return, and the amount resulted in a lower federal tax.
In the same way, if you had to pay an additional state tax for last year when you filed this year, you can deduct that next year on your federal return.
2007-06-01 19:35:00 · answer #3 · answered by ewetaunt 3 · 2⤊ 0⤋
If you claimed state and local income tax withheld as a deduction on your Federal return, and part of that amount was refunded, you claim income for that amount because your deduction was larger than it would have been if your withholding was correct. In any other situation, your refund is NOT listed as income.
2007-06-01 20:55:20 · answer #4 · answered by STEVEN F 7 · 2⤊ 0⤋
Your federal tax refund is not taxable. Your state tax refund from a previous year is taxable only if you deducted it on your federal return.
2007-06-01 18:44:00 · answer #5 · answered by Anonymous · 2⤊ 0⤋