Question

Does prior year's state tax refund count as income or not?

Forum|Forum|4 years ago
February 5, 2022
2 replies
0 views

TurboTax commentary says two things: (1) the state income tax refund I received last year is not taxed as income if I took the standard deduction last year, and (2) "you don't have to do anything - we'll figure out if its taxable for you".

I took the standard deduction, so thought it's not taxable based on (1) above. But the tax refund still shows up in the return, suggesting that TurboTax thinks it is taxable based on (2) above. Should I delete the state tax refund from Other Income calculations?

VolvoGirl

Employee

Where does it show up as income?

A State Tax Refund is taxable if you itemized deductions on that prior year's federal return and took a deduction for state income taxes instead of the sale tax. You got a deduction benefit for it so now you have to include it as income.

If you took the standard deduction it is not taxable and you don't need to report it. So you can delete it.

C

Confused37Author

I think I figured it out, but will post this in case anyone else gets stuck on the same part. After I left the state tax refund there and tried to move on, it did then ask me if I took the standard deduction. When I answered yes, it agreed that the refund is not taxable. My mistake thinking that TurboTax was smart enough to know that I took the standard deduction in advance. (I used TurboTax last year too, and imported last year's return when I started this year's.)