Question

in 2024 I received a $400 refund from the franchise tax board for the amount of state tax I over paid in 2023. I was able to refuse my 2023 federal tax liability by itemizing and claiming a deduction for state and local income tax paid that year. The $400 is fully taxable on my federal 2024 return. How should I report my state refund on my 2024 California return?

Answer 1

Short answer: don’t include it in California taxable income unless you got a tax benefit from it on your California return in 2023. In practice that means:

- If the $400 refund was only reflected on your federal return (you deducted the state tax on your federal 2023 return, not on your 2023 California return), you should subtract the $400 on Schedule CA (Form 540) as an adjustment to income so it is not taxed by California. Most tax software will ask about state refunds and make this subtraction automatically.

- If you also deducted the same 2023 state tax on your 2023 California return (i.e., you received a California tax benefit from that payment), then California follows the tax‑benefit concept for its own returns and you must include the refund on your 2024 California return to the extent it reduced your 2023 California tax. In that case, report the taxable portion on Schedule CA/other income lines as required.

If you want, tell me whether you itemized on your 2023 California return (or send the relevant lines) and I’ll tell you exactly what to enter on Schedule CA. Also keep your refund documents with your tax records.