Is my refund from last year considered income for this year and do I pay taxes on it?

  • My STATE  Refund last year is not on line 10 on 1040  329.00
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Your federal income tax refund from last year is not income. You do not pay tax on it. You don't even enter it in this year's tax return.

Your state income tax refund from last year is considered income this year (assuming you received the refund in 2012), and you pay tax on it, only if you had an itemized deduction for state income taxes on last year's federal tax return. If you did not have an itemized deduction for state income taxes last year, your state refund is not considered income and you do not enter it in this year's tax return.

Look at Schedule A from your 2011 federal tax return. If there is no Schedule A, you did not have itemized deductions, and your state refund is not income this year.
If Schedule A line 5 is blank or zero, you did not have an itemized deduction for state income taxes.
If there is an amount on Schedule A line 5, and box b, "general sales taxes," is checked, you did not have an itemized deduction for state income taxes.
If there is an amount on Schedule A line 5, and box a, "income taxes," is checked, then you did have an itemized deduction for state income taxes, and you have to enter your state refund in this year's tax return. However, it's possible that not all of the refund is taxable. TurboTax will calculate how much of the refund is taxable, and enter the taxable amount on Form 1040 line 10 on your 2012 federal tax return.
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