How to report form 1099-G state refund when becoming resident alien?

[gabriel-rigon]

I became a resident alien in 2024 before I was a non-resident alien. On my 2023 return, I received a refund for my state tax (MA), and so a 1099-G (with refund in case 2). As I was a non-resident alien last year, I couldn't claim a standard deduction. And my state tax was claimed as an itemised deduction. When trying to report through turbotax I'm asked the following "Did You Have to Itemize Your Deductions in 2023? Let us know if you had to itemize your deductions in 2023 because of a special circumstance (see below) even though taking the standard deduction would have been a higher deduction for you. (This is not common.) Here are the reasons you would have been required to itemize your deductions: - You itemized deductions for your state or local return - Your spouse itemized deductions for his or her separately filed return - You are a dual status alien" My understanding is that yes I had too itemize my deduction, but is that right?

[MaryK4]

Yes, you are correct- you were required to itemize deductions so your 1099-G will be income for 2024.

[gabriel-rigon]

That's where I get confused. When I answer all questions on TurboTax, the software ends up telling me it's non-taxable.

My understanding is that it should have been taxable since it is a direct change of my taxable income in 2023.

Since the software asked me questions related to last year's 1040, I answered based on my 1040-NR (non-resident status). My guess is that as a non-resident, I couldn't claim the standard deduction, which would have been higher than the itemized deduction (only my state tax). The software doesn't take into account this and concludes that the refund is non-taxable, by taking into account the standard deduction for a single person.

On the last page, before telling me that it is non-taxable, I have the option to "make my full refund taxable".

Should I go with TurboTax's conclusion? Or is it taxable, and the consideration about my status "single" shouldn't apply as I was not eligible for the standard deduction as a non-resident alien in 2023?

PS: along the way, I'm asked about schedule 2's AMT and excess advanced tax credit repayments, for which I gave an estimate since I had no schedule 2 applied as NR)

[KrisD15]

Yes, you should claim the state tax refund as income on your 2024 tax year return.

Yes, the questions the program asks is in regard to how you filed your 1040 for tax year 2023. Since you filed Form 1040NR, those questions are not relevant. 

This IRS link reports that a refund of state tax that would have increased the previous year tax liability is reported as income for the year received. This is the case for your situation. 

[gabriel-rigon]

Thank you.

Well, I suppose I will have to file a 1040-X since I unfortunately already e-filed for this year.

I suppose I have to first wait for my initial payment to be processed since my return has already been accepted by IRS...

[DaveF1006]

Yes. The IRS recommends that you file your your amendment as soon as your original return has been processed. You can check the status of your return here.