Tax Refund


Are State Tax Refunds Taxable?

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For those who itemize their deductions, it’s one of the stranger parts of the tax code. First, you get to take a deduction of your state and local taxes, then all of a sudden the next year you get a Form 1099-G from your state and you’re paying taxes on your state and local tax refunds. So, why is this happening? What gives?

Before we go into that, know that there are times when your state and local tax refund is not taxable – we’ll dive into this scenario first.

A general rule of thumb: If you didn’t deduct state and local income taxes last year, you don’t need to pay taxes on your state and local tax refund this year. For instance, if you didn’t itemize your deductions last year and instead you took the standard deduction, then your state tax refund from the previous year is tax-free this year.

Sales Tax Deducted, But Not State Income Tax?

There’s an important note to consider in regards to sales tax versus state and local income tax. On last year’s return, if you itemized your deductions and were able to deduct your sales tax and not your state and local income taxes, then your previous year’s state refund is not taxable when you file this year.

If you deducted your state and local income taxes last year and also received a state refund last year, then your state tax refund that you received from the previous year may be taxable. 

We’ve Got You Covered 

Don’t worry about knowing these tax rules. Meet with a TurboTax Full Service expert who can prepare, sign and file your taxes, so you can be 100% confident your taxes are done right. Start TurboTax Live Full Service today, in English or Spanish, and get your taxes done and off your mind.

Are State Tax Refunds Taxable?

File 100% FREE with expert help

Get live help from tax experts, plus a final review before you file – all free

Simple tax returns only. See if you qualify.
Must file by 3/31.

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