Free Tax Course
 

Taxable Government Refunds

Taxable government refunds, credits or offsets of state and local income taxes must be reported on the 1040 form.

What tax form are the taxable government refunds shown on?

If you received a state or local income tax refund (or credit or offset) you may receive Form 1099-G, Certain Government Payments, from the payer.

If you choose to apply part or all of the taxable government refund to your estimated state or local income tax, the amount applied is treated as received in the previous tax year.

Are state refunds always taxable? When don't I have to include taxable government refunds as taxable income?

If you either:

  1. claimed the standard deduction in the year for which you received the taxable government refunds

     

  2. elected to deduct state and local general sales taxes instead of state and local income taxes on Schedule A (itemized deductions)

Then you do not have to include the taxable government refund as taxable income on the form 1040.

When is state or government tax refunds taxable?

If you received a state or local income tax refund (or credit or offset) in the 2007 tax year and the refunded tax was deducted as an itemized deduction in the year 2006, part or all of your state and/or local tax refund is taxable.

In another word, if you took itemized deductions last year, you will have to include state or local tax refunds in this year's taxable income on your tax return.

How to report taxable government refunds?

Taxable government refunds must be reported in form 1040 line 10, Taxable refunds, credits or offsets of state and local income taxes. You can use the State and Local Income Tax Refund Worksheet to figure out the taxable part of your refund. That amount is then entered on the form 1040.


 Free-Tax-Course

 

Looking for more IRS Deductions?