![]() TurboTax Live tax experts are available in English and Spanish, year-round and can also review, sign, and file your tax return. If you have questions, you can connect live via one-way video to a TurboTax Live tax expert to get your tax questions answered. If you deducted your state and local income taxes last year and also received a state refund last year, then your state tax refund that you received from the previous year may be taxable.ĭon’t worry about knowing these tax rules, TurboTax will ask you simple questions about you and give you the tax deductions and credits you’re eligible for based on your answers. On last year’s return, if you itemized your deductions and were able to deduct your sales tax and not your state and local income taxes, then your previous year’s state refund is not taxable when you file this year. There’s an important note to consider in regards to sales tax versus state and local income tax. ![]() Sales Tax Deducted, But Not State Income Tax? For instance, if you didn’t itemize your deductions last year and instead you took the standard deduction, then your state tax refund from the previous year is tax-free this year. So, why is this happening? What gives?īefore we go into that, know that there are times when your state and local tax refund is not taxable – we’ll dive into this scenario first.Ī general rule of thumb: If you didn’t deduct state and local income taxes last year, you don’t need to pay taxes on your state and local tax refund this year. First, you get to take a deduction of your state and local taxes, then all of a sudden the next year you get a Form 1099-G from your state and you’re paying taxes on your state and local tax refunds. For those who itemize their deductions, it’s one of the stranger parts of the tax code.
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