In most cases, if you did not deduct the tax on the federal return in the past, you do not need to include this income. Also, the IRS has not issued any guidance to the contrary. I suggest you remove the Form 1099-MISC from your return, keep it in your file for future use, should you need it.
Then file your return and it will not be taxable on either return and your return will not reject.
- Tax benefit rule. IRS Publication 525 You must include a recovery in your income in the year you receive it up to the amount by which the deduction or credit you took for the recovered amount reduced your tax in the earlier year. For this purpose, any increase to an amount carried over to the current year that resulted from the deduction or credit is considered to have reduced your tax in the earlier year.
@jessicaz7
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