The Surplus Tax Refund is only exempt from federal and state taxes if you claimed the Standard Deduction or itemized your deductions, but didn't receive a tax benefit (for example, because the $10,000 tax deduction limit applied)
The above means that if you itemize your deductions on schedule A, there is a maximum of $10,000 allowed for property taxes and state and local income taxes combined. If you have reached that maximum then the amount is not included in your income. Therefore if you have reached that maximum then you do not need to include the amount in income. Also, if you do not itemize but claim the standard deduction, you do not include in income. For additional information use the link: Refund of State Taxes Paid
To enter the income, if required:
Go to Wages and Income
Other Common Income
Other 1099G Income
If the payment is a refund of state taxes paid and either the recipient claimed the standard deduction or itemized their deductions but did not receive a tax benefit (for example, because the $10,000 tax deduction limit applied) the payment is not included in income for federal tax purposes.
Payments from the following states in 2022 fall in this category and will be excluded from income for federal tax purposes unless the recipient received a tax benefit in the year the taxes were deducted.
- Georgia
- Massachusetts
- South Carolina
- Virginia
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