Dear TurboTax Community,
I read an article on Pocketsense.com entitled "Why Apply Your State Refund to Next Year's Taxes?"
https://pocketsense.com/apply-refund-[product key removed]-7924909
A paragraph in the article made the following claim:
Pay Less Income Tax
"If you itemize deductions, you usually have to count some or all of your state tax refund as taxable income the following year. If you apply the refund to your taxes for next year, however, you no longer have the refund as income. You thus will have to pay less in income tax."
I know the taxability of a State Income Tax Refund depends on many factors that are outlined in the IRS 1040 Instructions Publication, Schedule 1 Additional Income, and the State and Local Income Tax Refund Worksheet - Schedule 1, Line 1. Such as: whether state/local income tax or general state/local sales tax was itemized and deducted for the tax year, or whether the taxpayer received a benefit for the deduction, or whether the Standard Deduction was taken, etc.
But all things being equal, the general premise of their paragraph is: If you receive a State Income Tax Refund payment (check or direct deposit), it may be taxable on your Federal tax return next year. If you apply the refund to your taxes for next year..... it will not be taxable on your Federal return.
I've never heard of such a thing! Is what they say, true? Does it matter whether you take the refund as a payment now, or have it applied to next year? Is there a taxable difference between the two?
I'm just curious. Thanks.
