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Why is a state income tax refund counted as "income"?

I'm really confused about why a state tax refund is considered income. I earned the income in a previous year, overpaid on my taxed and the state gave me my overpayment back to me. It seems like I'm being double taxed on the same money. Can someone explain this to me?
    It's only counted as income if you took an itemized deduction for state income tax on the previous year's federal tax return. If you took that deduction, then you did not pay tax on the amount of the overpayment because it was included in the amount you deducted from your taxable income. That's why you have to pay tax on it now. You are just undoing the deduction that you weren't really entitled to in the previous year.

    If you did not take an itemized deduction for state income tax on the previous year's federal tax return, then the refund is not counted as income. You don't even have to report it.
      tax was withheld(paid) as an obligation, return created  "income" by returning obligation to you as income, or a credit.  my question is if i used turbo tax last year why can't  turbo tax import last years refund to this years return?
      • krebby - TurboTax does transfer last year's state refund to this year's federal return.
      • Stupid-that's our politicians working for us!
      • I am in agreement with Tammy. I am trying to do my taxes now and guided me to check my other income that was imported from my 2010 taxes stating that my NYS refund is being taxed which makes no sense to me b/c I claim ZERO all year and I claim 2 kids at the end so that I get a refund. Which MEANS I overpay throughout the year, then the IRS wants to tax me again? It does not make sense it has nothing to do with any type of deductions.
      • So basically we were given a tax refund for overpaying state tax and the US Gov and IRS want a piece of that money too.  Crooked tax system if I ever saw!  Flat or straight tax will end all this junk.
      • Exactly.  I don't even see why it should be an issue to be deducted at all then - that would solve all this wouldn't it?  Who ever thought up such a ridiculous thing - you are already taxed on it from your paycheck, then supposedly you take it as a deduction on your federal return (WHY????), so then you have to report it as income the next year and pay some more taxes on it after it was already taken out from your paycheck the previous year.