question archive Tobias overpays his 2018 state tax by $500 and gets a refund of $510 (500 plus $10 in interest) in 2019
Tobias overpays his 2018 state tax by $500 and gets a refund of $510 (500 plus $10 in interest) in 2019
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Tobias overpays his 2018 state tax by $500 and gets a refund of $510 (500 plus $10 in interest) in 2019. How is this refund treated for income ta purposes?
a. $500 will be taxed at the state and federal levels
b. Only the $10 will be taxed at the state level, but $510 will be taxed at the federal level
c. $510 will be taxed at the state and federal levels
d. $10 will be taxed at the state and federal levels, but only using the blind widower filing status rates
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Option b is correct i.e Only the $10 will be taxed at the state level, but $510 will be taxed at the federal level
Step-by-step explanation
Reason :
As extra state tax paid 2018 is refunded to Tobias of $500 along with interest of $10. The interest in the fresh income so it will be taxable at the state level also, whereas for the federal level both income are fresh and they shall be included in the gross total income of Tobias in the next tax filing year. So the option b is correct that Only the $10 will be taxed at the state level, but $510 will be taxed at the federal level
