This is unlikely under the 2018 tax changes. A state tax refund is only taxable if the payment reduced your taxes in the previous year. Most taxpayers who itemize deductions on their federal tax returns are over the SALT limit, and thus additional state credits do not increase their itemized deductions and refunds are not taxable.True. The credit for NY tax was never 100% in my case, but I think the value of the 529 tax break isn't really that exciting. Also, if I received a larger refund on the NY return because of the 529, then that became a larger state tax refund to be taxed on the following year's 1040.This may or may not have given you a state tax benefit. If you took a credit for all your NY tax on your NJ tax return, the net benefit was zero. If your tax credit was limited to the NJ tax on the same income, then you did get a benefit from the NY tax credit.Not applicable to OP because he is retired, but when I was commuting from NJ to NY, I used the NY 529 plan and took the tax break on my NY return. The NY plan uses Vanguard funds and is far superior to the NJ plan.
As a separate point, it's better to avoid getting the money back as a state tax refund. You can reduce your state withholding so that you get the credit back with every paycheck, and to ensure that you actually get the money on time. (There is another thread on the Bogleheads about the IRS finally clearing a backlog and paying refunds on 2019 taxes.)
Statistics: Posted by grabiner — Thu Jun 20, 2024 8:41 am