William, a single taxpayer, has $3,500 state income tax withheld from his paychecks in 2013. When he filed his 2013 state income tax return on April 15, 2014, he calculated and received a $600 refund. The $600 refund was received on May 27, 2014. What are the federal tax effects of the state income tax events of 2013 and 2014? I. If his itemized deductions total $6,000 in 2013, William includes $300 in gross income for 2014 II. If he did not itemize his deductions in 2013, none of the refund is included in 2014 gross income.

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Quizplus · Accepted Answer

If William itemized deductions in 2013, he would have deducted the full $3,500 state tax, so the $600 refund is taxable in 2014. However, only the amount that exceeds the standard deduction is taxable, which is $300. If he did not itemize, the refund is not taxable.

William, a Single Taxpayer, Has $3,500 State Income Tax Withheld