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Simply because it is considered as "income" ... all income must be reported to the IRS.

If your refund is consistently high and you desire not to have to keep paying taxes on it, then have your tax deductions changed appropriately - having less taxes removed on the paycheck. That way, you have the extra money to spend along the way instead of just banking it (interest free of course) with the government. Best advise: Consult a reputable CPA. Pardon me - who says your refund is taxable? You pay tax with after tax money (you figure your taxable income (which does NOT have a deduction for taxes you will pay), and then you figure how much tax you pay on that. Anything else would be circular. Hence, the money you pay is not tax deductible, and money refunded is NOT taxable. It has already had tax paid on it. State tax refunds, because you took it as a deduction in calculating your Federal Taxable Income, are taxable.

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16y ago

What else can I help you with?