Tax Benefit Rule - Refunds Previously Claimed as Itemized Deductions Worksheet

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This tax worksheet calculates whether an individual’s state income tax refund is taxable in the year after the state’s income taxes were paid.


A couple paid $4,000 in state taxes in the prior year and claimed itemized deductions totaling $14,000. If the couple received a state tax refund of $500 in the current year, the taxpayer will include all of the refund in their current year income. When the couple paid the excess (refund) $400 to the state in the prior year, it increased their itemized deduction on their federal return to $14,000, from $13,600. The entire amount recovered in the current year had given the taxpayer a tax benefit when originally paid.


  1. Do not enter more than the amount deducted in the previous year.
  2. If taxable income is a negative amount, enter that amount as a negative number. Do not enter zero unless taxable income is exactly zero. Taxable income must be adjusted for the net operating loss carryover.

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