The Internal Revenue Service (IRS) announced that the state tax refund is taxable based on the new guidance the agency released.
State Tax Refund is taxable in 4 states. (Photo: CBS)
State Tax Refund is Taxable
Millions of taxpayers have already filed their federal income tax and millions as well are expected to file in the upcoming days after the IRS released new guidance. The revenue agency announced that state tax refund in four states is taxable.
In a published article in Yahoo News, the state tax refund is taxable in four states and these are Georgia, Massachusetts, South Carolina, and Virginia. The revenue agency also added that this includes state and local tax (SALT) that residents claimed.
However, residents or taxpayers in 17 states do not need to pay and include the state payments they received in 2022. This means that they no longer need to include it in their federal income tax because the payment they received is for the “interest of sound tax administration and other factors,” according to the revenue agency.
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Why the State Tax Refund is Taxable in these 4 States?
Jared Walczak, Tax Foundation’s vice president of state projects, said, “The IRS has singled out these four states because they structured their rebates as tax refunds rather than tax rebates or stimulus payments, and therefore the IRS is regarding them as a reduction of net state tax liability.”
Meanwhile, Vivian Paige, a certified public accountant based in Norfolk, said, “The tax benefit rule says to the extent that you deducted something in the past and then you got a refund of it, the amount of the refund is taxable. You had to have a tax liability in order to receive this money. So if you filed a return with zero liability, you did not get the money.”
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