If a state refund goes to satisfy past-due tax, is it still taxable income?

by Mark B. Zinman, CPA | Oct 19, 2018

If a state refund goes to satisfy past-due tax, is it still taxable income?

A state refund is taxable if it was deducted in a prior year.  

For example, if you had a 2017 state refund and it was garnished to pay a 2015 liability, then the 2017 refund would be taxable in 2018 if you itemized in 2017 and received a tax benefit for the deduction of the taxes. For 2018, which is the year in which your refund was applied to a prior year liability, you would have a deduction for the same amount as you would have technically made a payment in 2018.

For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.

Answered by: Mark B. Zinman, CPA, is a managing partner with Zinman & Company in Southampton, Pa.

The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
Financial FAQs

Search the most frequently asked finance and accounting questions and read the responses from PICPA members. Always consult a CPA before taking action.