State Refund double tax

Forum|Forum|5 years ago
January 12, 2021
4 replies
22 views

Is it true for Arizona filers? I agree that when you receive a prior year AZ state refund (e.g. 2019) it should be reported as income for the following year (e.g. 2020). But why is the refund amount also reported as 2020 AZ state income? I notice this when viewing the TT Form 1040 and 140 details. This appears to be paying (additional) state income taxes on the prior-year overpaid taxes which were refunded.

Would appreciate an answer this question.

ThomasM125

Level 15

Oddly enough, in Arizona you can deduct your state income tax paid in the current year that you also deducted on your federal return. So, you need to add that back if you get a refund in the following year to the extent you got a deduction for it in the previous year.

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Bill-11Author

Level 2

Hi ThomasM125,

Thanks for your answer. But I'm still confused.

I paid TOO MUCH state taxes in 2019, hence I received a refund for my over-payment. Why must I report my over-payment as income in 2020? I can't find an answer online via GOOGLE search. I didn't get a clear answer to my question from your email reply.

Hoping you can further explain for me.

Thanks,

Bill

TomD8

Alumni - Champ

If you itemized deductions on your 2019 federal return, and you deducted your state income taxes, any state tax refund would be considered taxable income on your 2020 federal - but not on your state - return.

AZ tax refunds are reported on Form 1099-G. Be sure to enter your 1099-G in the proper section of TT. Once your 1099-G is available, you can obtain it online as described here:

https://azdor.gov/news-events-notices/news/form-1099-g-tax-information-available-online-taxpayers

**Answers are correct to the best of my ability but do not constitute tax or legal advice.