Taxable State Tax Refund: One State Refund, Another State Due -- What's My Taxable Amount?

[SL_276651]

Hi All,

I used Itemized Deduction on my 2022 Federal Return so in 2023 my State Tax Refund received for 2022 should be taxable (if I understand it correctly).

In 2022 I paid State Income Tax to two states. In 2023 I received a $1100 refund from State A, and I paid a $900 due to State B.

So my question for my 2023 Federal Return is: Is my taxable State Tax Refund $1100, or $1100-$900=$200?

I searched the internet and went through IRS's publications but can't seem to find a good answer.

Thank you!

[AnnetteB6 · Accepted solution]

The full $1100 refund from state A will be included as taxable income.  The balance due paid to state B can be entered and included as part of your itemized deductions for 2023 (subject to the $10,000 limit for state and local taxes).  So, in the end, they may offset one another, but it is not reported that way on your tax return.

Go to Deductions and Credits > Estimates and Other Taxes Paid > Other Income Taxes > Other Income Taxes Paid in 2023 > Balance due on your 2022 state taxes paid in 2023 and click Start or Update to enter the balance due amount you paid for state B.