Final answer:
Ruth will have to report $100 of the $175 state tax refund she received in 2016 on her tax return as income because this is the amount by which her itemized deductions exceeded the standard deduction she would have gotten.
Step-by-step explanation:
Ruth needs to determine how much of the $175 state tax refund she received needs to be reported on her 2016 tax return. The key point here is that if Ruth itemized deductions on her tax return in the previous year and received a deduction benefit from it, then the refund may need to be included in her income. To find out the amount that is taxable, we compare it with the benefits received from itemizing deductions. If the standard deduction for her filing status in the year she received the refund was less than her itemized deductions by at least the amount of the refund, the entire refund is taxable.
For Ruth, her itemized deductions of $9,350 in 2015 included $300 of state tax. As the standard deduction for a head of household was $9,250 in 2015, which is less than her itemized deductions by $100, only the difference ($100) needs to be reported as income. Since the refund of $175 is more than the difference, Ruth is only required to report $100 as taxable income for 2016, as that is the amount by which her deductions exceeded the standard deduction she could have taken.