Why do I have to pay taxes on my 2007 tax refund?
March 26, 2009 by Tax Forum
Filed under Questions & Answers, Refunds
psychgrad asked:
I will admit that I am not financially savvy and I am thankful that someone can do my taxes for me.
Every year, we have to pay taxes on the tax refund from the previous year. To me, that seems like I’m being doubled taxed. I overpaid the government, they refund me, but then they take money back out of that refund of money that should have originally been mine?
Arg…..Can someone explain this to me?
We lived in 2 states last year, so we will be paying taxes on two refunds.
Don’t get me wrong. I don’t understand why I have to pay taxes on a refund, but I still do it every year. I’m not interested in trying to trick the IRS or the state government.
I will admit that I am not financially savvy and I am thankful that someone can do my taxes for me.
Every year, we have to pay taxes on the tax refund from the previous year. To me, that seems like I’m being doubled taxed. I overpaid the government, they refund me, but then they take money back out of that refund of money that should have originally been mine?
Arg…..Can someone explain this to me?
We lived in 2 states last year, so we will be paying taxes on two refunds.
Don’t get me wrong. I don’t understand why I have to pay taxes on a refund, but I still do it every year. I’m not interested in trying to trick the IRS or the state government.
v b on Mon, 30th Mar 2009 12:36 am
Let’s say I overpay my state taxes. I pay $10,000 to the state and deduct that on my itemized deductions. Later the state refunds me $3000. I really only owed $7000, but I deducted $10,000…the IRS doesn’t want me amending a perfectly good return, so I just add the $3000 to the next year’s return.
If I didn’t itemize and get a benefit, it’s not taxable.
spicertax on Wed, 1st Apr 2009 8:09 am
Your Federal return taxes your state refund only if you itemized deductions last year and deducted state income taxes. So naturally any state tax refund becomes taxable on the Federal the next year. Your Federal refund, however, is not taxed on your Federal return.
hrblockrichardk on Fri, 3rd Apr 2009 5:42 pm
You never pay tax on your federal income tax refund.
You may pay federal income tax on your state income tax refund, if you had deducted the state income taxes paid in the previous year. The theory is you received the tax benefit of deducting taxes that were returned to you. So please pay tax on the refund, since you not really entitled to the deduction.
Richard K
Master tax Advisor
HR Block
This advice was based upon my understanding the law in effect at the time it was written as it applies to the facts provided by you. See my profile for more infromation.
Richard