I previously posted a question about a deceased aunt's tax refund. This case is for me personally.
Sorry this is so long... I hope it's not too confusing.
<EDITED - After posting this, then going back and paying a bit more attention, I do get a message that my '2021 refund is not taxable'. As for the $100 difference noted below, it now seems to be stuck at the higher amount. Not worth trying to figure that out.>
We received a CA state tax refund in 2022 from our 2021 return. We are non-residents of CA and none of the other states mentioned in the Publication. If it matters, the refund was over $10,000 and I did Itemize my taxes for that year, primarily due to this state tax payment. I'm not sure if I received a tax benefit or not. LOL, I guess I did since I got a refund, but it was a State refund. <shrug>
IRS Publication IR-2023-23, Feb. 10, 2023 states the following:
IR-2023-23, Feb. 10, 2023
"During a review, the IRS determined it will not challenge the taxability of payments related to general welfare and disaster relief. This means that people in the following states do not need to report these state payments on their 2022 tax return: California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Maine, New Jersey, New Mexico, New York, Oregon, Pennsylvania and Rhode Island. Alaska is in this group as well, but please see below for more nuanced information."
1) What does 'IN the following states' mean? Does it mean if you are a resident? Or is it regardless of your residency that you do NOT need to report the state payment?
2) The statement seems very clear and does not delineate between whether one used the Standard Deduction, OR Itemized and may have received a tax benefit or. Can someone confirm this? (This may be irrelevant if being a non-resident I have to report it.)
What complicates the matter to some degree is, the publication goes on to say:
"In addition, many people in Georgia, Massachusetts, South Carolina and Virginia also will not include state payments in income for federal tax purposes if they meet certain requirements. For these individuals, state payments will not be included for federal tax purposes if the payment is a refund of state taxes paid and either the recipient claimed the standard deduction or itemized their deductions but did not receive a tax benefit."
And a bit later reiterates the same but it seems to only apply to those four states:
Refund of state taxes paid
If the payment is a refund of state taxes paid and either the recipient claimed the standard deduction or itemized their deductions but did not receive a tax benefit (for example, because the $10,000 tax deduction limit applied) the payment is not included in income for federal tax purposes.
Payments from the following states in 2022 fall in this category and will be excluded from income for federal tax purposes unless the recipient received a tax benefit in the year the taxes were deducted.
- Georgia
- Massachusetts
- South Carolina
- Virginia"
Again, this last paragraph regarding Itemizing (or using the Standard Deduction) seems to further indicate that these specific criteria of gaining a tax benefit when Itemizing is ONLY for the four states list. Can someone please confirm this?
What's odd is... if I say Yes to getting a state tax refund and input the refund, it actually reduces my Fed taxes by $100 or so. If I totally leave it out, I have to pay the ~$100. Which is not a problem, it's just weird.
So my question is, should I or should I not include the refund on my return Federal Return and do I even need to do a CA state return since I am not a resident and received no income in CA, but only received this refund which was apparently due to me anyway? If I'm reading the Publication correctly, it seems to say I don't even need to put it on my return. Or, do I need to put it on the return, and of course, I've seen that it is not taxed... but actually decreases my Fed tax burden.
Thanks in advance!
