This year Mary received a $340 refund of state income taxes that she deducted on her tax return last year. Mary included a total of $6,300 of state income taxes when she itemized deductions last year. What amount of the refund, if any, should Mary include in her gross income this year?

Question

Quizplus · Accepted Answer

Mary should include the $340 refund in her gross income if her itemized deductions exceeded the standard deduction by $340. This is because the deduction for state income taxes reduced her taxable income last year, so the refund is an increase in income this year. However, if Mary did not itemize deductions last year and instead claimed the standard deduction, the refund would not be included in her gross income.

This Year Mary Received a $340 Refund of State Income