Military Spouse Prior Year Tax Refund from VA home state TX

[DJson]

I am a military spouse and was taxed erroneously for about four years. I paid taxes on all of the income for fed and state for each of the years.

I had to go back and file amendments for the prior years to request a refund.  I finally received the refund for all four years with interest.

Do I have to file those refunds as income when I already paid taxes on them, and this was the VA state error?  I live in TX, which doesn't have state taxes, and I had TX as my home state in prior years.  My employer at the time said they couldn't change the deductions, and I went through a lot of paperwork to finally get it settled.

Please advise so I do it correctly this year since I received the refunds in 2023 for years 2019 - 2023.  Thank you.

[TomD8]

A state tax refund would be taxable on your federal return only if you itemized deductions and deducted your state income tax in the year(s) in question.  If you took the standard deduction in those years, then the refund is not taxable income.

The refund is not taxable income on a state tax return.

[DJson]

Thank you for your response,

I am a little confused, and I would like a little further clarification,.

to reduce or deduct my state taxes on my federal, so I’m not sure what that process looks like as I’ve never done that before, so I’m a little confused when you make that statement, can you give me an example.

is what I did I filed my taxes, and in some instances I had to pay taxes to Virginia and others. I had a refund.  Since my home of record is Texas I was allowed to use the military spouse exemption and not have to pay Virginia taxes. However, I didn’t find out about that until years later that’s why I had to file amended taxes for the prior years.

Virginia should not have taken any of the taxes however, they did but once I filed the amendment based on the Military spouse amendment, they returned all of the taxes they deducted from my check and I received those in 2023 for the prior for years.

do I need to claim that money from Virginia which was state tax that I should not have paid on my federal because I live in Texas and work in Texas and Texas does not have a state tax.

please advise, thank you very much

[DMarkM1]

Sure.  Take a look at what was filed for the years you got the VA refunds for after amending.  Did you file a Schedule A with itemized deductions?  If no, then none of the refunds are taxable income.  When you enter the form 1099G showing the state/local refund amounts received (not including interest) in 2023, you will be asked if you itemized in those prior years.  If you answer "No" then TurboTax will let you know none of your refunds are taxable in 2023.  

If you answer "Yes" then you will need to use your copy of the amended returns to answer a few questions about those prior year returns.  Once you answer those questions, TurboTax will let you know how much, if any, of those refunds are taxable in 2023.  Basically, the questions are designed to determine if your federal taxes would have been different in those years had you not claimed a deduction for those refund amounts.   

Finally, you mention you received interest on the refunds.  That interest amount is taxable income and is entered as a form 1099-INT in the "Wages & Income" section using the "Investment" dropdown where you will "Start/Revisit" the 1099-Int topic.    

[DJson]

I have a follow-up question because I have been fiddling too long.

I tried to enter the state refund of the interest, but the 1099INT form doesn't have the option to place the interest paid on the tax refund.  It only refers to an early withdrawal penalty and not 'interest paid on tax refund' as it says on the form I have from the VA taxation office.  I have looked for other locations but can't identify what makes sense.  Please advise how I can have someone look at my screen to help. Thanks.

[AmyC]

I think you have fiddled too long and got yourself turned around. If you have a 1099-INT for interest, you enter it in box 1 to match the form. There is nothing more to do for the interest. The 1099-INT must be reported and is taxable.

The conversation before this was about the refund being taxable. If you got a $500 refund with $12 interest, then the $12 interest is on the 1099-INT and the $500 is on the 1099-G. None of this is related to early withdrawal.  The 1099-G may or may not be taxable based on your itemizing, as explained above.

[DJson]

Yes, thank you.

For further clarification, see the attached, where the amount in Box 1 is 371.00; Box 2 is 0.00, and the tax year is 2022.

I have 4 of these, with the difference being the following for each.  I need assistance as to where they should be added in turbo tax.  Thanks.

#2

Box 1 - 0.00

Box 2 - 817.20

Box 3 - 2020

#3

Box 1 - 0.00

Box 2 - 516.25

Box 3 - 2019

#4

Box 1 - 0.00

Box 2 - 248.34

Box 3 - 2018

#5

Box 1 - 

Box 2 - 

Box 3 - 

[TomD8 · Accepted solution]

Enter the form dated 2023 in the Other Common Income section of TurboTax, under "State and Local Tax Refunds on Form 1099-G".  The form you received is a substitute 1099-G.  The $371. is a refund from tax year 2022.

The forms you received for the years 2018, 2019, and 2020 are substitutes for Form 1099-INT (all the payments are interest).  Assuming you received all these payments in 2023, you should enter the amounts in the Interest and Dividends section of TurboTax under "Interest on 1099-INT".   Choose "I'll type it in myself".  You can either enter each form separately, or you can add up the amounts and simply enter the total.  Don't check the box that says "my form has info in more than just Box 1".

This should result in everything being properly reported on your tax return.

[DJson]

A million thanks!!!!!