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FAQ Articles

Why would I need to report my refund as income?

In computing itemized deductions on your federal tax return, you are allowed to deduct state income taxes paid during the year.  Most people deduct the amount of North Dakota income tax withheld, as shown on the W-2 form, plus any North Dakota estimated tax payments they made during the year.  Since this deduction reduces federal taxable income, if any part of the state tax deducted on the federal return is later refunded, that amount has to be reported as taxable income for the year in which the refund is issued.

Example:  A taxpayer deducted $500 in state income tax on his 2015 Schedule A of his federal return, based on the North Dakota withholding amount from his W-2.  When he filed his 2015 North Dakota return, he found he was entitled to a refund of $100, which was issued on April 10, 2016.  This means that he only paid $400 in state income taxes for 2015, not the $500 he claimed.  Therefore, the taxpayer will be required to report the difference of $100 (the amount of his refund) on his federal return for 2016.

nd.gov - The Official Portal for North Dakota State Government
North Dakota: Legendary. Follow the trail of legends

Ryan Rauschenberger
Tax Commissioner
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FAQ Articles

Why would I need to report my refund as income?

In computing itemized deductions on your federal tax return, you are allowed to deduct state income taxes paid during the year.  Most people deduct the amount of North Dakota income tax withheld, as shown on the W-2 form, plus any North Dakota estimated tax payments they made during the year.  Since this deduction reduces federal taxable income, if any part of the state tax deducted on the federal return is later refunded, that amount has to be reported as taxable income for the year in which the refund is issued.

Example:  A taxpayer deducted $500 in state income tax on his 2015 Schedule A of his federal return, based on the North Dakota withholding amount from his W-2.  When he filed his 2015 North Dakota return, he found he was entitled to a refund of $100, which was issued on April 10, 2016.  This means that he only paid $400 in state income taxes for 2015, not the $500 he claimed.  Therefore, the taxpayer will be required to report the difference of $100 (the amount of his refund) on his federal return for 2016.

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