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Is Your State Tax Refund Taxable?

Posted by Admin Posted on June 03 2016

General Rule:  Your state refund is taxable if you itemized deductions in the prior year and received a tax benefit from deducting your state income tax.

 

Exceptions:

 

  1. You took the standard deduction in the prior year.  If you took the standard deduction in the prior year your state refund is not taxable.
  2. You used the sales tax deduction in the prior year.  If you used the sales tax deduction in the prior year your state refund is not taxable.
  3. You were subject to the alternative minimum tax in the prior year.  If you were subject to the alternative minimum tax in the prior year and received no tax benefit from deducting your state tax then your state tax refund is not taxable.  If you received a partial benefit then some of your state refund is taxable.
  4. You paid the state tax and received the state tax refund in the same year.  In this case your state tax refund is not taxable but don’t deduct the tax you paid (to the extent of the refund excluded).