Choice "c" is correct. Each item listed here is included in gross income
except for the state tax refund from a prior year. The taxpayer always claims
the standard deduction. This means that the state tax was not deducted in the
year it was paid. Under the tax benefit rule, the refund of that tax is not
taxable.
Wages
$ 22,000
Unemployment compensation
6,000
Pension distribution (100% taxable)
4,000
Total
$ 32,000
Choices "b", "a", and "d" are incorrect per the above rule and per the above
computation.
