Question

A taxpayer receives several Form(s) 1099-G for various taxable state refunds. They are all included in federal gross income. Which of the following statements is accurate?

a. All of the state refunds are also considered taxable to California, regardless of source.
b. The California state tax refund is excluded, but the non-California ones are included.
c. The California state tax refund is excluded for a nonresident taxpayer only.
d. The state income tax refunds are not taxable income to California.

Answer 1

The correct answer is that the California state tax refund is not taxable income to California for residents, but non-California state refunds are taxable. Tax refunds are included in federal gross income if the taxpayer previously itemized deductions.

Step-by-step explanation:

The accurate statement concerning the taxation of state tax refunds in California is: The California state tax refund is excluded, but the non-California ones are included.

This is because state tax refunds may be taxable income to the federal government, depending on whether the taxpayer itemized deductions in the previous year. However, for the state of California, if the taxpayer is a resident, their state tax refund is not considered taxable income. Conversely, refunds from other states are included as taxable income on their California return.

The various forms of tax revenue, such as individual income taxes, corporate income taxes, and social insurance and retirement receipts, are significant sources for both federal and state governments. Notably, the personal income tax is a major source of federal revenue but represents less than half of all federal tax revenue.