Lived in 2 states. Employer only paid tax to PA. I overpaid PA taxes, but owed taxes to OK. How to i report the PA refund was actually over payment used to pay OK?

[jc-hendrix]

My employer messed up my w2 and paid all taxes to the state of PA in 2016. So when filing my 2016 taxes, I had to fix all that. I got a refund from PA.  It was actually not a refund, it was a overpayment because I moved to Oklahoma mid year.  So I had to file my taxes in a way that I used my PA refund to pay the taxes my employer did not pay to Oklahoma. 

I want to make sure I don't have to pay taxes on my PA refund, since it was not a true refund.  It was an overpayment that PA owed me.  I then used that overpayment to pay taxes i owned to OK.  

How to I report my PA tax refund in a way that shows it was not a true refund but money they had to give me back and money I then had to pay to another state? Trying not to pay extra taxes.  Do I show I paid a loss to Oklahoma too?  I need help. 

[DanielV01 · Accepted solution]

It depends.  If you itemized deductions last year, then you actually need to report both exchanges separately.  Your PA refund is potentially taxable since you claimed the PA taxes paid as part of your itemized deductions.  However, you must claim this separate from the amount you paid back to Oklahoma (which you will also claim), because it is possible that not all of the refund is taxable (whereas all of the taxes you paid back to Oklahoma last year will be deductible this year).

In the Income section of the Federal Taxes tab, you will click the dropdown arrow on the Other Common Income section, and click Start on the State Refund Button, and answer all pertinent questions to determine the taxable portion of the PA refund.

Then, in the Deductions and Credits section, you will click the down arrow on the Estimates and Other Taxes paid dropbox.  Click Start on Other Income Taxes  (The screenshots below will help guide you).

If you took the standard deduction last year, however, your PA refund is not taxable at all, and you still may claim the OK taxes you had to pay if you are itemizing this year.  Question is, Did you Itemize?  Here's an FAQ to assist you if you are not certain:  https://ttlc.intuit.com/questions/2892163-did-i-itemize-last-year

Here are the screenshots to assist your entries.