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Taxable Refunds

Reporting Taxable Refunds on Form 1040

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State income tax refunds might be taxable income.

Any state income tax refund you received last year might need to be included on your federal income tax return. If you itemized your deductions on your federal tax return last year and you claimed a deduction for State and Local Taxes, then you need to figure the taxable portion of your state refund.

However, if you claimed the standard deduction on your federal tax return last year, your state tax refund is not taxable. State refunds are also not taxable if you deducted state and local sales tax instead of state income tax on last year's federal return.

Some short cuts to help you figure this out. If you filed Form 1040-A or 1040-EZ for the previous year, then you took only the standard deduction. You can skip the part about taxable refunds. Also, if you are using the same software program as last year, the software may remember this information from the previous year and may be able to calculate the right amount of the taxable refund.

Documents You May Need

  • Form 1099-G from the state or states that sent you a refund.
  • Your previous Form 1040 and Schedule A (which you'll need to find figures the state refund worksheet).
  • Your previous state tax return (which shows the refund amount, in case you did not receive a Form 1099-G).

Taxable Refunds are Reported on Form 1040 Line 10

You calculate the taxable portion of your state tax refund using the State and Local Tax Refund Worksheet on page 23 of the Instructions for Form 1040 (PDF).

Some people may need to use Worksheet 2, Recoveries of Itemized Deductions, found in Publication 525. This worksheet is used in several circumstances, most notably if a person was impacted by the alternative minimum tax in the previous year. This worksheet is also used if a person received reimbursements for any other itemized deductions.

 

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