In 2016, I received an NJ Tax Refund of $2,294.00 and paid Tax to MD of $2,341.00 while an NJ resident working in NJ and MD. Would the NJ refund count as income on 2017?

[tsmith07]

Turbo Tax is calculating the NJ refund as Federally Taxable income for 2017, however, the net of the tax refund from NJ and the tax paid to MD is a tax payment of $47.  Should I remove the 2,294 from State and local Tax Funds on Form 1099-G under 1099-MISC and Other Common Income in the 2017 Income Summary or will the payment to MD for State Tax in 2016 be counted in the Deductions & Credits section offsetting the tax refund income?

[IsabellaG · Accepted solution]

Yes, because the two taxes are treated separately, not netted against each other.

 Your NJ refund will be taxable if you claimed your NJ withholding on your 2016 return, and received a tax benefit from that deduction.

On the other hand, the tax you paid MD in 2017 (for 2016) is a tax deduction for you in 2017. Make sure that you see this in your Schedule A. Your 2017 State Income Tax deduction should include all of your 2017 W-2 withholding, plus the amount you paid with your 2016 state tax return.