Will state tax refunds stil, get taxed for Federal after 2019?

Forum|Forum|7 years ago
June 5, 2019
5 replies
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I always tried to justify the taxing (federal) of state refunds by considering the deduction of state and local taxes from federal in itemized deductions on the federal 1040. Now that this deduction is severely limited, it would be fitting if the taxing of the state refund disappears

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eddyBAuthor

Level 2

I am expecting a big refund this year. I have standard deduction. Pay fed taxes on that refund in 2020?

KatrinaB48

Level 15

No, not if you take the standard deduction.

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KatrinaB48

Level 15

Unfortunately, state tax refunds will still be taxable on the federal return in 2019 for taxpayers who itemize deductions. There were no changes made under the new tax law.

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eddyBAuthor

Level 2

standard deduction + big state tax refund this year = fed taxes on refund next year?

agagnon11223344

Level 2

If you used the standard deduction (did not itemize) the year you got a state refund, then you do not need to report your state refund as income.

https://www.irs.gov/faqs/interest-dividends-other-types-of-income/1099-information-returns-all-other/1099-information-returns-all-other

Mike0

Level 2

Now that we are in the 2nd year of the new tax code, I agree that this should have been addressed a little further. Between the high CT income and property taxes, my state tax bill easily clears the $10,000 limit. If I had over-payed the state in 2019 and was owed a refund, I would have been taxed on it even though this amount was already excluded from the 2019 tax deduction, so it is being taxed a 2nd time. However since I owed the state at 2019 tax time, I do not get to deduct the additional taxes because it exceeds the $10K tax deduction limit for 2020.

After further research, it appears there is some consideration for this. The following web page explains it well. Scroll down to the POP QUIZ near the bottom.

https://www.thetaxinstitute.com/insights/state-and-local-taxation/state-tax-refunds-tax-benefit-rule/