Refund of local income tax in 2023 for 2020

[marie2023]

Good afternoon, My employer withhold local income taxes during a portion of CY2020 which was inappropriate.  I received a refund through their taxing entity and a 1099-G in CY2023 indicating the amount of the refund and 2020 in box 3.  I also had a refund from the State of PA in 2023 due to overpayment of 2022 state taxes. Turbo Tax (Deluxe) asked whether I itemized in 2022 for the PA refund but did not ask about 2020 and is calculating tax as if this was taxable income in 2023.  I did not itemize in 2022 or 2020 so these refunds should both not be taxable.  How does one work around this?  I am concerned that not reporting, as others have suggested, is not appropriate - non taxable does not equate to non reportable does it? Thanks!

[VolvoGirl]

If you did not itemize for those years just leave them off.  You don't need to even enter them.  Delete them.  

[marie2023]

Thank you for your prompt response, concern remains that non taxable does not equate to non reportable as the 1099-G was sent to the IRS.  Other thoughts?

[VolvoGirl · Accepted solution]

IRS pub 525.  See page 25 example 29.......

https://www.irs.gov/pub/irs-pdf/p525.pdf

You claimed the standard deduction on your 2022 federal income tax return.  In 2023,you received a refund of your 2022 state income tax. Don’t report any of the refund as income because you didn't itemize deductions for 2022.

[marie2023]

Thank you, greatly appreciate the citation and referenced example.