Do I have to claim my NYS income tax refund from 2006 on my 2007 tax return as income?

I received a refund from NYS in 2007 for 2006 tax year. I keep reading that I do if I itemized my 2007 federal return. I did itemize vs. taking the standard deduction but in some cases it mentions did you itemize your state income tax return specifically. Why would I have to claim it as income if it is a refund owed to me by the state because I overpaid in taxes in the first place. This is also the first year I've heard this. I've always itemized and almost always get a small refund from the state. What changed this year or do I miss something? Help!

Public Comments

1. Yes. Income is income, whether from federal or state. The reason why you have to claim it is because this is income taken out of your paycheck to pay state taxes. So, this is money that you would have received as income had you not paid it in taxes. Hope this helps. Good luck!
2. If you claimed the NYS tax as a deduction in a previous, you now need to claim any refund as income. For example, if you paid $1250 in NYS taxes in 2006, and claimed $1250 as an deduction on your 1040, but received $250 back as a refund, you need to report the $250 as income. Because you really only paid $1000 in NYS in 2006.
3. Nothing changed. Apparently you finally read the instructions. When you itemized in 2006, you were given the option of itemizing either your state INCOME taxes or your state SALES tax. If you itemized your state income taxes, you put down the entire amount you paid in during the year. This increases your itemized deduction total and you get a "tax benefit" if your taxes go down. So...if you then get an income tax refund, you got a "tax benefit" you didn't deserve...because if you had claimed less of an itemized deduction, you would have had fewer itemized deductions and your taxes would have been higher. If this is the case, the money is added back to the 2007 return on line 10 of the 1040.
4. I believe the idea is this, If you itemized your deductions in 2006, you took a deduction for the taxes you paid to NY on your federal 2006. That's fine, but something after you filed your 2006 taxes, NY sent you back some $$$. Well guess what, you got that money back in 2007, and if all went right in 2006 you would of never had that deduction in 2006 on your federal form, right??? So what is happening is that you are reversing a deduction that you took in 2006 when NY state sent you back the money they shouldn't of taken out in the first place. All of this happens in 2007 however. I think I got that right.