State Income Tax Refund

Mar 08, 2005 3 Replies
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I received a refund in 2004 for NYS income taxes that were overpaid in 2003. I itemized deductions for 2003 but my deductions were reduced because our income was over the $139,500 limit. On my 2004 income taxes it seems that I must include the full amount of the NYS tax refund as income even though I did not get to deduct the full amount of the overpayment in



2003. Is this correct? I know there is a worksheet used to compute the taxable portion of the 2003 state income tax refund, but that worksheet seems to only determine if I could have used the Standard deduction if I did not have the excess state income tax payments in 2003.

-- Vic Roberts Replace xxx with vdr in e-mail address.



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B

Not necessarily. In the Recoveries section of Publication

525, see the topic "Itemized deductions limited" beginning on page 23. You may still end up having to include the full amount, but you should go through the calculation at the bottom of page 24.

If you are referring to Worksheet 2 on page 21 of Pub. 525, you can't use that worksheet if your itemized deductions were limited in 2003. Bob Sandler (not a tax professional)

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Thanks to both Bob and Phil. I let TaxAct do the calculation and it determined that I the full amount from the 1099-G should be reported on Line 10. However, I will now go through the worksheets by hand to make sure that TaxAct got it right. If I do have to include the full 1099-G amount that seems grossly unfair, since I lost 3% of my itemized deductions over a specific amount that I don't remember right now, but the amount that was reduced by 3% was far greater than the state income tax overpayment.

-- Vic Roberts Replace xxx with vdr in e-mail address.

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I've looked at Pub 525 and also discussed the logic of the calculations with the friendly folks over in the TaxAct list (some of those same people hang out here) and now understand that in my case the reduction in itemized deductions triggered by my income did not reduce the additional deduction I received in 2003 for the state income tax overpayment. Therefore, the fact that TaxAct has determined that I must include the full amount of the refund as 2004 income is, unfortunately, correct.

-- Vic Roberts Replace xxx with vdr in e-mail address.

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