I'm filing state tax for virginia as non-resident and there is one box here in form 763 with instructions as below. I couldn't understand these instructions at all. Which amount (highlighted in red) is it referring to ? I've claimed refund from California state (I had W2s from VA and CA) as well as from the federal Govt, does this amount (highlighted in red) refer to any of these ?

Line 34 - State Tax Refund Or Overpayment Credit Reported As Income On Your Federal Return

Enter the amount of any state income tax refund or overpayment
credit reported as income on your federal income tax return.
State, local or foreign income taxes withheld from your salary,
estimated tax payments or payments made on tax for a prior year
to such taxing authority may be deducted on your federal return
for the year withheld or paid. The federal deduction is for the
amount paid rather than the tax liability, so a refund or credit is
generally treated as taxable income (a recovery of an excessive
deduction) on the federal return. Since Virginia does not allow the
state and local income tax deduction, a federally taxable refund or
overpayment credit is to be subtracted from federal adjusted gross
income on the Virginia return.

The amount cited in red refers to your state tax refunds from 2004.

This is somewhat confusing to to average taxpayer.

When you itemize on your 2004 federal tax return, you got to claim the amount of state taxes withheld from your paycheck in 2004. If you got a refund of your 2004 state income taxes in 2005, that refund is considered taxable income in 2005, but only if you itemized on the 2004 federal tax return.

Refer back to your 2004 federal tax return. If you itemized your deductions using Schedule A and claimed the amount of state income taxes withheld, then your state tax refunds are considered taxable income by the federal government. If you did not itemize, then the refunds are NOT taxable.

In EITHER case, do NOT claim the refunds as income on your Virginia tax return.

Thanks Sir. I don't really understand what is schedule A, I just filled 1040NR-EZ form in 2004 for federal tax return and I just checked my 2004 Federal tax return 1040NR-EZ and saw that on line 11 "Itemized deductions" the amount I have specified is that statndard deduction amt of 4850 that Indians get because of india - US treaty.

In 2004 I also filed Maryland state tax (form 502) and got refund (I was on F1 visa then).

So do I need to specify anything in the amount field cited in Red above ?

If you filled in Form 1040NR-EZ and claimed the standard deduction under the U.S.-India Income Tax Treaty, then the item in RED does NOT APPLY TO YOU.

You can ignore it.