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We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by providing you with interactive tools and financial calculators, publishing original and objective content, by enabling you to conduct research and compare information for free - so that you can make financial decisions with confidence.
Bankrate has partnerships with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover.
How We Make Money.
The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within the listing categories. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you.
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Dear Tax Talk,
My husband and I filed amended state (Massachusetts) and federal tax returns for the last three years. It resulted in tax refunds that amounted to $9,000. We also incurred additional taxes that we owe the state ($331). The Internal Revenue Service paid interest on these tax refunds. Will we need to claim these refunds as income on our 2013 return? — Lisa
Dear Lisa,
There are three separate issues here:
First, federal income tax refunds are not taxable as income.
Second, interest from both the federal and state governments is considered taxable income and should be reported.
Finally, state income tax refunds may be taxable, depending on what you deducted on your prior-year tax returns. If you did not itemize deductions on Schedule A and took the standard deduction, then the state refunds are not taxable. If you did itemize deductions on Schedule A and elected to deduct state and local sales tax instead of deducting state income taxes paid, then the state refunds are not taxable. However, if you itemized your deductions and elected to deduct the state income taxes in an earlier year federal tax return, then generally it must be included in income on your next federal tax Form 1040.
Ask the adviser
To ask a question on Tax Talk, go to the “Ask the Experts” page and select “Taxes” as the topic. Read more Tax Talk columns.
To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.
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