Submitted by Lilslugga2002 t3_10xg6i1 in massachusetts
wkomorow t1_j7s6ct7 wrote
According to the state, taxable on the federal level if you itemized deductions and included the tax you paid to the state as an itemized deduction, not if you took the standard deduction.
"The refunds are not taxable as income at the state level.
All tax refunds, including the 62F refunds, are taxable by the federal government to the extent that the recipient claimed itemized deductions on his or her federal return for Tax Year 2021, including his or her state income tax. Refund recipients who itemized on their federal returns for Tax Year 2021 will receive a Form 1099-G from the Department of Revenue by January 31 of the year following the year in which the refund was received."
https://www.mass.gov/info-details/chapter-62f-taxpayer-refunds
Dobagoh t1_j7s8k54 wrote
Yea, what’s so complicated about this?
frankybling t1_j7se9z5 wrote
not even a little confusing and for once the explanation makes sense
NativeMasshole t1_j7soov1 wrote
I just don't understand why it would count as income again. The state tax doesn't get deducted on federal taxes, so you already paid federal taxes on it when you earned the money in 2021. Is it just because it could impact how your itemized deductions were calculated? Is that why it's not applicable for the standardized deduction?
wallet535 t1_j7spm8n wrote
If you itemize, yes, you can deduct state taxes withheld (and paid) from federal taxable income. That’s why state refunds are added back to your federal taxable income the following year. It’s not relevant if you take the federal standard deduction.
NativeMasshole t1_j7spsjk wrote
Oh, ok. That makes sense then. Thanks!
wallet535 t1_j7sqysn wrote
I think what’s complicated is they’re wondering if this Chapter 62F payment was truly a state tax refund within the meaning of the relevant parts of the Internal Revenue Code, and if it wasn’t, then was it a government payment more like, say unemployment benefits?
Zaius1968 t1_j7vwri2 wrote
Still taxable then whether you it’s used or not. If a refund only if you itemized.
Hanover02339 t1_j7snzyv wrote
What about the 10k deduction cap on state and local taxes though? If you were only able to deduct 10k out of say, 20k of MA taxes, and this refund returned to you 3k of the 20k of MA taxes, how would it make sense to pay taxes on the refund of a deduction that you didn’t take?
wkomorow t1_j7sq3ws wrote
Hanover02339 t1_j7sreo0 wrote
Thank you for sharing this - it addresses exactly the scenario I was raising, and also confirms that it wouldn’t make sense to tax this refund under the circumstances described.
Reddit!!
Those folks who’s refund would bring them under the SALT limit, would be the ones who could be affected by this potential ruling.
KitchenBreadfruit816 t1_j7swi90 wrote
Who the hell takes capped SALT when standard is way bigger
wallet535 t1_j7syp03 wrote
People with big mortgage interest payments.
wallet535 t1_j7t25ea wrote
Generally speaking, you can deduct home mortgage interest on the first $750,000 ($375,000 if married filing separately) of indebtedness, which alone can be way more than the standard deduction. The capped SALT deduction only adds to this potentially gigantic itemized deduction. Does that make sense? SALT alone won’t make itemized deductions worth it; it’s SALT plus other deductions, mostly the mortgage-interest deduction.
KitchenBreadfruit816 t1_j7t1t3t wrote
It’s capped at 10k
twowrist t1_j7t62aq wrote
SALT is capped at 10K. Mortgage interest has a different set of limits entirely. Plus there’s still charitable deductions and conceivably medical deductions.
wallet535 t1_j7sqiuu wrote
It wouldn’t make sense. That’s why the state wrote that the Chapter 62F refund would be federally taxable only to the extent it was previously deducted from your federal income. In your example, it wouldn’t have previously been deducted; thus, it wouldn’t be taxable.
Hanover02339 t1_j7sroxh wrote
U/wkomorow provided a link that addresses the situation precisely. That’s good Reddit.
wallet535 t1_j7sssiy wrote
Hell yeah!
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