Virginia tax rebate 2022 being split as income between 2022 and 2023

[mp5252]

I don't know if my Virginia tax rebate of $250 is being handled correctly by Turbotax.  I itemized for 2022 and received a tax benefit, so have to claim the rebate as income.  I entered the rebate under tax refunds in Turbotax, and now Turbotax is only applying part of the rebate amount to 2022 and part to 2023.  Did I enter the rebate in the right place?  It seems like the total amount should be applied to 2022 as it was all received in 2022 and my 1099 lists the whole $250 for 2022.

[ThomasM125]

It is possible that the full amount of your state tax refund is not taxable on your federal tax return. It would only be taxable to the extent it was deducted in a previous year on your federal tax return. The state tax deduction can be limited, as you can only deduct up to $10,000 of state income/sales tax and property taxes on your federal tax return as a component of your itemized deductions. You can look at line 7 of your schedule A from the previous year to see how much of your state tax was deducted. That may help you determine if the full $250 of state tax refund is taxable in the current tax year.

[mp5252]

Thank you for your quick reply!  I had a typo in my first post, I meant to say that I itemized in 2021 and received a tax benefit, so my $250 Va. tax rebate received in 2022 should be claimed as income.    On my 2021 Schedule A Line 7, I only deducted $2,428 for state income tax paid in 2021, so I was nowhere near the $10,000 limit.  When I entered the $250 into 2022 Turbotax as a tax refund, I got a message that said "It turns out part of your 2021 refund is taxable." and "$155 from your 2021 state tax refund is taxable on this year's federal return".  Also, "Because you paid part of your 2021 taxes in 2022 we will reduce your state and local income tax itemized deductions on your federal Schedule A, line 5, by $95".  So $95 was subtracted from my 2022 taxes paid, on line 7 of the 2022 Schedule A, and $155 was included as income on my 2022 Schedule ! line 1.  This proportion was calculated by the State and Local Income Tax Refund Worksheet.  The Worksheet lists my $1473 payment made with my 2021 return in column 1(c) as "Estimated Tax Paid After 12/31/2021", but it was not an estimated tax payment.  It was the amount owed with the return.

So my questions are: (1) Did I enter the tax rebate in the right place, as a tax refund, or is there another place to enter it in Turbotax?  (2)  Should the entire rebate be considered income for 2022, or is this proportional treatment by Turbotax correct?

Thank you so much!

[ThomasM125]

You are correct, the full refund amount should show as taxable from what you described. I suggest you go back through the State and Local Tax Refund section, under Other Common Income and review your entries. When you come to the page that says Let's See if Your 2021 (name of state) Refund is Taxable, choose the option that says No, I'll skip this. Just make all of my 2021 refund taxable. Then, look on line 1 of Schedule 1 to verify that the full amount of the refund is listed there.

You can view your form 1040 and schedules 1 to 3 while working in the online version of TurboTax by following these steps:

1. Click on Tax Tools in the left menu bar
2. Click on Tools
3. Look under Other Helpful links….
4. Choose View Tax Summary
5. Look in the left menu bar and choose Preview my 1040
6. Scroll down the page to see form 1040 and schedules 1 to 3