|I received a state tax refund last year. Must I include
that amount as income on my federal return this year?
It depends on several factors, the most important of which
is whether you itemized deductions on your federal income tax return last year.
If you did not itemize deductions on your federal tax return last year, do not
report any of the refund as income.
However, if you itemized deductions last year and then
received a refund of state or local taxes, you may have to include all or part
of the refund as income on your return this year. In general, state and local
income tax refunds are taxable if the refunded tax was deducted in a prior year
and you received a tax benefit from the deduction. Refunds are partially
taxable if your itemized deductions last year exceeded your standard deduction
by less than the amount of the refund.
Complete the state and local income tax refund worksheet
found in the instruction booklet to your Form 1040 to determine how much (if
any) of your state or local income tax refund is taxable this year.