Are taxes ever owed on a federal tax refund?

[DanielV01 · Accepted solution]

It depends, but usually not.  The IRS never charges taxes on your refund.  (They do assess penalties and interest when you have to return a refund, but this is not the same).  There are a few states (Iowa comes to mind), that does give a state deduction based on the overall Federal tax due.  When you receive a refund of the amount due claimed on state taxes, the state may consider this taxable income.  Very few states have this provision, however.  In general, Federal tax refund is not taxed.  Here is a webpage with more information:  https://turbotax.intuit.com/tax-tools/tax-tips/Taxes-101/What-Is-Taxable-Income-/INF15613.html

[nlanglois7]

Thank you so much for clarifying this!  That webpage is also very useful for further clarification.

[DanielV01]

You're very welcome.

[nlanglois7]

By the way, can STATES tax federal refunds or can they only tax the state refunds they gave?

[DanielV01]

No state will tax their own state refund.  I know Iowa can (partially) tax a Federal refund, but there are very few other states that practice this.  On the Federal return, the state tax refund may become taxable if you itemized the year before.  You likely didn't, so you shouldn't have anything to worry about with this.