How to handle a 1099-G for a two-year-ago state tax refund

[mbeynon1]

I have two 1099-G forms for TY 2018.  One is for my 2017 state tax refund payment and the second is for my 2016 state tax refund payment.  The 2016 1040 had an extension and was filed late enough that both 2016 and 2017 state tax refunds were paid in early 2018, which is why I now have two 1099-G forms for TY2018.

The problem is I already included the 2016 1099-G amount in the 2017 1040, but because it was filed so late it is reported as a TY2018 1099-G.

Any advice how to handle the 1099-Gs for the 2018 1040?  My concerns is the IRS expecting to see both reported.

Options I see are:

1. only include the 1099-G for the 2017 state tax refund.  Ignore the one for 2016, since it's already handled on the 2017 1040.
2. only include the 1099-G for the 2017 state tax refund.  Include a statement to explain this to the IRS.  (how to do this if I'm e-Filing?)
3. include both 1099-G amounts, but create an offsetting credit so the 2016 amount doesn't impact the 1040 calculations (what specific credit to use?)

Thank you.

[CherylW · Accepted solution]

I have another option for you.

You'll have to amend 2017, taking your tax refund out.  If it was taxable in 2017, you'll get a refund for your 2017 taxes.  Then report both in 2018, the year that you received both.

Before you do that, though, make sure that you itemized in both 2016 and 2017.  If you did, you'll need to amend.  If you didn't, that means that you didn't get the benefit of deducting your state taxes paid on your Schedule A.  If that' the case, then you don't need to claim the refunds on your return at all.

How to Amend 2017

[mbeynon1]

This makes sense.  I will choose to amend 2017 to correct this.

Given I will amend 2017, is there any reason to not just e-File 2018 immediately while the amended 2017 is being mailed in to the IRS and states?

The alternative is to file an extension for 2018 to allow the 2017 amended returns to be fully processed before e-Filing 2018.

[CherylW]

No, go ahead and e-file 2018 before you get 2017 amended.  Year to year doesn't affect most returns:  only if you have a carryover will it make a difference.