Does every 1099-G have to be reported as income?

[dusthoektax]

I have a 1099-G from my state for $500.  This amount was refunded to me because of an error in my 2014 taxes which was corrected in 2016 using a 540-X.  I still payed way more than $500 in state taxes for 2014.  Is this still income that needs to be reported?  I did have a Schedule A for that year.

[jtax · Accepted solution]

Maybe. You have to report it as income if deducting it in 2014 reduced that year's federal taxes. That is the "tax-benefit rule."

If you just answer TT's interview questions it should try to figure that you for you. It might not be able to do if for a return older than last year. 

If it can't figure that out, the best way to do determine if it is taxable is to revise your 2014 return to remove $500 of your state income tax deduction on your 1040 Schedule A. If that increases your taxes, the refund is taxable. While you're doing that you can test to see if it all matter by removing $100, $200, $300, $400, etc. and some amount less than $500 results in no change. If so the refund is only partially taxable. This is very easy to do if you used the desktop software in 2014 and still have the software and files. (Make a copy before you change anything). I'm not sure how you can do in the web TT version.