Today's Tax Tip: Tax-free Money
Mar. 13 -- For the vast majority of taxpayers, a state tax refund is tax-free money.
Listen to today's tax tip.
If you got a state tax refund last spring, you probably also recently got a form 1099 from your state reminding you about that check. And, the good people in your state capital also sent a copy to the IRS.
Usually, when you get a 1099 — showing interest from a bank, say — you have to report the amount as taxable income. But for the vast majority of taxpayers, a state tax refund is tax-free money.
How do you know where you stand?
Well, if you are among the 75 percent of taxpayers who did not itemize deductions on your 1999 federal tax return, the state refund is totally tax free. Even if you did itemize, there's a chance part of it is tax free.
Take the time to run through the worksheet you'll find in the tax instructions. It won't take long, and it might save you money.
One other tip, if you do itemize: If you had to pay extra tax with your state return last year, be sure to include that amount in your federal tax deductions this year.
Next: Taxable income.
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