Question

In 2017, Tomas a single taxpayer, had $4000 in state tax withheld from his paycheck. He properly deducted that amount on his 2017 tax return as an itemized deduction that he qualified for, thus reducing his tax liability. after filing his 2017 tax return, Tomas discovered that he had overpaid his state tax by $306. He received his refund in July 2018. What must Tomas do with the $306 refund?

Check all that Apply:

State Refund of $306 should be included in taxable income

State refund of $306 should not be included in taxable income.

Answer 1

Answer : State Refund of $306 should be included in taxable income

Reason explained below

The Internal Revenue Service says that state income tax refunds are taxable income if you have claimed itemized deduction for the same in the previous year for reducing the tax liability

As in 2017 Tomas properly deducted that amount on his 2017 tax return as an itemized deduction that he qualified for, thus reducing his tax liability. after filing his 2017 tax return.so during 2018 while filling tax return Tomas will include $306 refund as taxable income.