The state income tax refund is not necessarily all taxable or all not taxable. It's only taxable to the extent that the deduction actually reduced your 2023 federal tax. You might not have gotten the full benefit of the deduction if one or more of the following occurred.
- Your total itemized deductions exceeded your standard deduction by less than the amount of the state tax refund.
- Your deduction for state and local taxes was limited by the $10,000 cap ($5,000 if married filing separately).
- If you had not deducted the amount that was later refunded, your deduction for state income tax would have been less than your deduction for sales tax.
In any of those situations, only part of the state tax refund will be taxable. The calculation of the taxable amount is very complicated. Fortunately you don't have to calculate the taxable amount yourself. TurboTax will do the calculation for you. Just enter the 2023 refund in your 2024 tax return and proceed through the questions. Enter the information from your 2023 tax return when TurboTax asks for it. TurboTax will tell you how much is taxable, if any, and it will put the taxable amount in the proper place in your tax return.
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