Is state tax refund income for line 10 in 1040?

[m2m]

State tax refund as a result of voluntary extra withholding - is this considered as income for line 10 in 1040?  If yes, isn't it double taxation?  And what is the impact on AMT?
Thanks!

[taxref]

State income tax refunds are only federal taxable income if the taxpayer received a tax benefit by claiming the amount refunded as a deduction.  Consequently, it is not double taxation.

For example, assume a taxpayer itemizes deductions.  In Year A, the taxpayer claims a deduction for $500 in state income tax paid.  In Year B, though, the taxpayer receives a refund of $200 of that amount.  He had claimed a deduction for $500, but only wound up paying $300 after the refund.  In that case, the $200 is taxable on the federal return.

If the taxpayer had taken the standard deduction, his state refund would not be taxable.  That is because he did not receive a tax benefit from the state taxes paid.

[m2m]

Thank you Taxref. 

Does the state send the taxpayer a 1099?  If not, very easy to miss reporting.  So if not reported?

[TheOtherMe]

The states I have lived send 1099-Gs in the form of a postcard.

[rangerj]

1. The states are required to issue 1099s. 2. The refund is taxable to the extent that the taxpayer received a "tax benefit", as per the "Tax Benefit Doctrine". A good tax preparation program will calculate this if it is given the necessary information. IIR IRS Publication 17, as well as another one of their publications, has a worksheet intended to calculate the tax benefit for this purpose. Generally the cost to do this calculation by hand would be prohibitive.

[m2m]

Thanks OtherMe.  Got the 1099-G online.

Thanks taxref and ranger.

“State income tax refunds are only federal taxable income if the taxpayer received a tax benefit by claiming the amount refunded as a deduction. Consequently, it is not double taxation.”

“The refund is taxable to the extent that the taxpayer received a "tax benefit", as per the "Tax Benefit Doctrine"

Please help me understand. There was no tax benefit but the worksheet says refund is taxable. What am I missing?

Tax return filed in October:
Sched A State tax deduction : $7274
State tax: $7429
Income tax withheld: $7070
“Estimated” tax payment: $2600 (4/14/13 filed extension with $2600 in error, should have been $260.00)
Total tax paid: $9670
Overpayment Refunded : $ 2241 reported on 1099-G.
The worksheet shows $2241 is taxable?

Thanks soo much.

[taxref]

In order to do the math, some additional information is needed.  

1. For the 2012 return you filed in 10-13, did you take the standard deduction or did you itemize?
2. If you itemized on the 2012 return, what was your filing status?
3. If you itemized on the 2012 return, were either you, your spouse, or both of you, over 65 and/or blind for that year?
3. If you itemized on the 2012 return, what was the total amount of itemized deductions you claimed?

Edited to add:

4: For 2012, were you subject to the AMT?  If yes, what was the amount listed on Line 3 of Form 6251, and what was the total AMT on Page 2 of your 2012 1040? 

[m2m]

Thanks so much taxref.
Responses in italics.

1. For the 2012 return you filed in 10-13, did you take the standard deduction or did you itemize?
        Itemized
        
2. If you itemized on the 2012 return, what was your filing status?
        Single
3. If you itemized on the 2012 return, were either you, your spouse, or both of you, over 65 and/or blind for that year?
        over 65, Not blind
3. If you itemized on the 2012 return, what was the total amount of itemized deductions you claimed?
        28,397

Edited to add:

4: For 2012, were you subject to the AMT? If yes, what was the amount listed on Line 3 of Form 6251, and what was the total AMT on Page 2 of your 2012 1040?
        AMT - yes.  Line 3 of Form 6251 = 22,719
        total AMT on Page 2 of your 2012 1040 = 1177

    

[taxref]

If I am correctly following what happened, the state refund would not be taxable on your 2013 1040.  The reason is because you received no federal tax benefit for 2012 for the amount the state tax refunded in 2013.

The amount on which a federal tax benefit would be based would be $7,274.  That was the actual amount you claimed on your 2012 Schedule A.  The amount that you accidently overpaid on your state tax was never deducted on your federal return. Consequently, you would not have taxable income from the refund.  



 



 

[m2m]

Thanks sooo much again taxref.

"If I am correctly following what happened, the state refund would not be taxable on your 2013 1040. The reason is because you received no federal tax benefit for 2012 for the amount the state tax refunded in 2013."


That's what I thought too.  But I have this 1099-G and I wanted to make sure that it was not taxable. I must be be missing something in doing the worksheets because it shows as taxable on both the LIne 10 -1040 and Pub 525 worksheets.

My halfheimer's brain is totally perplexed.