2021 Software Error? State and Local Income Tax Refunds for a Prior Year

[StarGirl18]

I received 2019 refund from my state, for an amended return, I enter that into TurboTax, which never asked if I took the standard deduction that year or itemized, I took the standard deduction in 2019.  TurboTax entered that into the State and Local Tax Refund Worksheet into Part VII stating that it was taxable and carrying it over into Schedule 1, Additional Income.  Is the software wrong?

[JulieS]

Anytime you enter a state refund from a prior year, there is a follow up questions to determine if it is taxable. 

To revisit this section:

1. Select Federal on the left side.
2. Select Income & Expenses toward the upper left.
3. Find Refunds Received for State/Local Tax Returns on the list and click Edit to the right.
4. The next page should show your taxable state refunds, click Continue.
5. The next screen Refunds From Years Prior to 2020, gives you the opportunity to show the amount is not taxable, but it defaults to taxable. See the image below. 
6. If your refund is not taxable enter 0 in the Taxable amount box. 

[StarGirl18]

There is no follow up question for a 2019 Refund Received in 2021.  I did that section over and over, no questions.  There is a follow up question for 2020 refund.

[StarGirl18]

I am using the Premier TurboTax.

[AmyC]

I am sorry you are having trouble, the program just needs the total taxable state refunds. You can add them all together.

• If you did not itemize, not taxable 
• If did not deduct state and local taxes, your refund is not taxable.
• If you itemized deductions for 2019 and deducted your state and local taxes, then taxable and you can add all of your state refunds together that were received in one year.

[StarGirl18]

Hi Amy, Thanks for responding.  Again I went through that section and it only ask me if I took the standard for the 2021 taxes.  Did not ask me if I took it for 2019 refund.  It automatically assumes it is taxable (checked my State and Local Tax Worksheet).  The software program has a bug.  It is a simple question to program in the software.  Yes, I can edit it, but the software should ask the question.  There are other people like me who amended prior returns, who got their refunds late due to covid, etc.

[StarGirl18]

I am using a purchase retail version of Premier, which is updated every time I use it.   And no I don't get the screen you are talking about.  I can only edit the State and Local Income Tax Refund Sheet in Part VII.  I am hoping someone from Turbo Tax sees this and fixes the software.

[STONESFAN64]

I'm having same issue with a 2022 1099-G refund for tax year 2020.  Turbo tax is treating it as taxable even though I took standard deduction in 2020.  This is a problem with the software.  Turbo Tax Customer support advised me to amend my 2021 return.  LOL  what a joke-bad advice!!!

[MonikaK1]

When you are entering a state tax refund (Form W-2G) in Wages and Income:

Enter payments for the state for which you received the refund. If you received refunds from more than one state, enter each one separately in TurboTax and report payments associated with that state. Use the link to Add another state or local tax refund.

Under the entry field, "Total of all your payments and withholding", a link appears, "What does this include?". The text at that link explains:

Add up any payments you made to your state or locality, along with any state or locality withholdings from the previous tax year (in this case, 2021), including:

 - Amounts withheld on your W-2, W-2G, and 1099

 - Estimated tax payments for 2021 (including any paid in 2022 for 2021 - it's common for the fourth quarterly payment to be made in January)

 - Overpayment from 2020 applied toward your 2021 return

 - Payments made with an extension of time to file

 - Refundable credits

You can find most of this info on your 2021 state tax return. Do not include balance-due payments made with (or after) filing a return. Enter the total amount of all of these combined here.

Anytime you enter a state refund from a prior year, there is a follow-up question to determine if it is taxable. 

To revisit this section:

1. Select Federal on the left side.
2. Select Income & Expenses toward the upper left.
3. Find Refunds Received for State/Local Tax Returns on the list and click Edit to the right.
4. The next page should show your taxable state refunds, click Continue.
5. The next screen Refunds From Years Prior to 2021, gives you the opportunity to show the amount is not taxable, but it defaults to taxable. 
6. If your refund is not taxable enter 0 in the Taxable amount box.

See this help article for more information on entering the form.

See this article for more information about Form 1099-G.