If your tax liability is zero under the standard deduction you can skip the itemized. If you do not itemize, your state refund will not be taxable next year. See below.
For next year’s state or local tax refund, to figure out if it’s taxable all three of the following must true, to count as taxable income:
- You itemized deductions last year, instead of taking the standard deduction.
- You claimed state and local income taxes (not general sales taxes).
- Claiming the deduction helped you increase your federal refund or lower your tax bill.
