Where do I enter federal tax refunds received for prior year amended returns in my state return?

[mjkoslosky]

I believe federal tax refunds are taxable in my state.

[AmandaR1]

What state are you in?

[mjkoslosky]

Montana

[mjkoslosky]

it seems to me I had to enter federal refunds as income when I used to do the taxes manually

[AmandaR1]

You're correct. This is very uncommon, but you should be asked about it in the state tax questions for Montana. You would not enter this in the federal taxes area, only within your state will the questions be asked. As there can be numerous items to account for in each state, be sure to read through each screen. Let me know if you've gone through your state tax questions yet or not and how it goes.  If you're not asked about it, you can always calculate the amount and enter it as an 'addition to federal adjusted gross income'. All of the state tax sections give you the option to enter any 'additions' and 'subtractions.'

[AmandaR1]

See Montana Adjustments here: <a rel="nofollow" target="_blank" href="https://revenue.mt.gov/Portals/9/individuals/forms/Schedule_I_2016.pdf">https://revenue.mt.gov/Porta...> See the worksheet to calculate your federal income tax refund adjustment here: <a rel="nofollow" target="_blank" href="https://revenue.mt.gov/Portals/9/individuals/forms/Form_2_Worksheet_II_2016.pdf">https://revenue.mt....>

[AmandaR1]

Note that you only need to calculate this deduction if you itemized your deductions for the state on your 2015 return and included your federal income taxes. To check this, take a look at your 2015 Montana return line 42, if the standard deduction box is checked, then you can stop here. If the itemized deduction is checked, next look at the attached worksheet for state itemized deductions and assure that you deducted your 2015 estimated federal income taxes paid during the year. If so move on to calculating if any or a portion of your refund is taxable using the second worksheet above.

[mjkoslosky]

I put it under "Recoveries of Amounts Deducted in Prior Years", put the "decrease in tax" from the IRS in the "did reduce MT tax liability" and put the "increase in credit" from the IRS in the "did not reduce MT tax liability".  Does that sound right?

[mjkoslosky]

ps these were refunds from tax years 2013 and 2014

[AmandaR1]

Yes, that sounds perfect. Check your 2013 and 2014 returns then; the above comment still applies, but check the refund's related year's return. The software cannot know if you itemized or not.

[mjkoslosky]

if I use the worksheet II that you referenced, it doesn't look like any of it is taxable - I am confused - do I report it all as "did not reduce MT tax liability" then?  how do I save this as part of the document in turbo tax? please help

[mjkoslosky]

I did itemize both years; if I did the worksheet correctly line 5 is greater than line 6 so according to line 7 not taxable?  but if I then enter the amount of the refunds in the "did not reduce MT tax liability" section my refund increases because it thinks it was included in the fed AGI but I can't see that it was; so do I just save the MT worksheet with my other paperwork and not include this on the MT return at all?

[AmandaR1]

You don't need to enter any amount if it's not taxable.

[AmandaR1]

No, you do not need to enter federal tax refunds. State tax refunds are taxable if you got a federal deduction for the amount in the past. State taxes start with various federal subtotals, depending on the state, but do not provide a deduction for federal taxes.