[Bloom&Company]

DON’T UNNECESSARILY REPORT A STATE INCOME TAX REFUND

There’s a line on the tax form for reporting a state income tax refund, but most people who get refunds can simply ignore it even though the state sent the IRS a copy of the 1099-G you got reporting the refund. If, like most taxpayers, you didn’t itemize deductions on your previous federal return, the state tax refund is tax-free.

Even if you did itemize, part of it might be tax-free. It’s taxable only to the extent that your deduction of state income taxes the previous year actually saved you money. If you would have itemized (rather than taking the standard deduction) even without your state tax deduction, then 100% of your refund is taxable—since 100% of your write-off reduced your taxable income. But, if part of the state tax write-off is what pushed you over the standard deduction threshold, then part of the refund is tax-free. Don’t report any more than you have to.