Is My State Tax Refund Taxable?

Many taxpayers elect to have a pass-through entity pay their share of state taxes. Will this make a refund of those taxes taxable?

Photo by Benjamin Davies on Unsplash

The Tax Cuts and Jobs Act of 2017 essentially eliminated the deductibility of state income taxes above the $10,000 level.

However, many states got creative and enacted the ability for pass-through entities to pay the state income tax on behalf of the taxpayer and deduct those taxes on that entity’s tax return. This in effect, allowed for a full deduction of the state income tax. The is commonly referred to as a pass-through entity (PTE) tax payment.