Line 10 of Fed Tax Return Form 1040 "Taxable refunds, credits, or offsets of state and local income taxes" Clarification (paying, deduction)

[spalam01]

In line 10 of the Form 1040 it mentions that "Taxable refunds, credits, or offsets of state and local income taxes".

Does this refer to the refunds and credits from state and local income taxes or does it include the refund from the federal income tax return for the prior year as well.

Please advice.

[brocco]

it wouldnt make sense for refunded tax money from the fed to be taxable

[md21722]

Federal tax refunds are never taxable at the federal level (never included on line 10).

The only reason you have to put a state refund on line 10 is if you claimed withholding or estimated taxes on 1040 Schedule A for a prior year. If you use the standard deduction you do not need to declare your state refund.

Also note that you do not always have to put the full amount of the state refund on line 10. You only have to put up to the amount that you put on Schedule A minus the state sales tax you could have claimed. The idea is if you end up with too large of a refund you should have just put the sales tax deduction in the first place (otherwise you would be paying more federal taxes than the law requires). The IRS has detailed instructions for this in pub 525 if you get into special circumstances and prior year refunds.