When I filed tax extension in April 2021 for the tax year of 2020, I overestimated the state tax liability and paid extra. Then when I finally filed tax return, I received the refund of $1,000 in Oct 2021 for the state tax overpaid. Should I include this $1,000 as the income on my 2021 tax return? It was just the refund of overpayment and I have not deducted it anywhere.
I have always been doing itemized rather than standard deduction.
enter your refund and the tax software will calculate how much if any is taxable, based on your itemized deductions last year.
This assumes you use the same program for both years and imported your prior return.
Your 2020 state tax refund, received in 2021, is only taxable, or partially taxable, o your 2021 federal return, if you deducted state income tax , on your 2020 fedearl return (Schedule A).
Q. Should I report state tax refund as income?
A. You should enter it in TurboTax (TT) and let TT make that determination. If you did not itemize on the federal return, it will not be taxable. Even if you did itemize, it's unlikely taxable.