Is My Refund Taxable?

SD would like to know:
I overpayed my both state and federal by about $12,000. Since the money I used to make the payments was already subject to taxation, can I assume the state and federal refunds will not be taxable on my return, or is my logic flawed ?
Thank you kindly. SD

My reply:
Thanks for visiting SD! This may sound like a simple questions, but since it's tax related it isn't as simple as it may seem.

Federal tax refunds are not taxable income on your Federal tax return, as they are merely return of an overpayment of taxes. However, federal tax refunds can be taxable income on your state return, if your state allows deductions for federal income tax paid, and you used the deduction. Since you didn't tell me what state you're in, I don't know.

State tax refunds are usually taxable on your federal return if you itemized your deductions. However, if you deducted your state taxes on your federal return, but were subject to AMT and did not receive a benefit for the state taxes, then they will not be taxable income on your federal return. If you did not itemize your deductions, the state tax is not federally taxable.

I hope this clears things up for you,
Gina
www.GLGcpa.com