You will want to include it on Schedule 1 1040 “Other Income” on line 8z. You do not have to recalculate your 2021 income tax- the adjustment is in the year you received the rebate. You must add the amount as income because you received the benefit of the deduction in the prior year. You are also correct that you do not have to include it as income on your Pennsylvania return because you did not receive any benefit from it at the state level.
A recovery is a return of an amount you deducted or took a credit for in an earlier year. The most common recoveries are refunds, reimbursements, and rebates of itemized deductions. Tax benefit rule. 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.
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