I realize this thread is a year old, but there does not seem to be any progress on resolving the question here or any of the other related threads:
https://ttlc.intuit.com/community/state-taxes/discussion/is-oklahoma-parental-choice-tax-credit-taxa...
https://ttlc.intuit.com/community/state-taxes/discussion/how-do-oklahoma-tax-filers-enter-a-1099-g-s...
I would love for TurboTax to make their data entry more flexible and allow the current tax year in box 1 of the 1099-G used for income tax refunds. And I would also love if Oklahoma would own up to the fact that structuring this tax credit as an income tax refund/credit is extremely problematic. The implementation of the PCTC has been a disaster since day one, so the fact that they haven't resolved this yet is also not surprising.
I wanted to add my thoughts, as I think there is a workable solution without requiring the form to be added. I'm curious what others think about this approach:
Several people have mentioned that this additional 1099-G form can be ignored if not itemizing deductions (per instructions on the form itself). I think it is insightful to look deeper into why that is the case.
While it is refundable and could potentially exceed the amount of an individual's state tax liability, tax credits themselves are generally not taxable. This is not earned income, it is simply a reduction in the tax owed to the state for a given year. (It's not really that either, but that's the way the legislature wrote the law.) The reason this *may* be taxable is in how it impacts the amount of the state and local tax deduction a person is eligible to claim. And people can only claim the SALT deductions when they itemize. You would only be taxed on the PCTC insofar as it reduces how much you are able to deduct under the SALT deduction. (Please correct me if I'm completely wrong about this...)
The main problem with some of the proposed ideas to report the PCTC amount under various Misc. Income sections in TurboTax is that it would treat the full amount as taxable income, which technically is not correct. You might end up with the same outcome in some circumstances, but TurboTax would not properly take this amount into account when figuring the SALT deduction, which is where it really matters. Because of the $10k SALT cap, reporting $7000 of state income tax owed and simply adding $7000 of additional PCTC "income" to counterbalance it is not the same thing as reducing the state income tax owed by $7000.
For example, without the PCTC if you own a home (pay property taxes) and have a high-paying job, your income + property tax may exceed the $10k deduction limit. If your state income tax liability is then reduced by the amount of the credit, the first little bit would have no impact if you're still above the $10k deduction amount. But if the PCTC pulls you down below that limit (as it likely would if you received the full amount), you would then owe taxes on the difference between the $10k cap and your new deduction amount, not necessarily on the full PCTC amount. I have no idea if the PCTC is larger than your original state income tax liability, if the SALT deduction would reflect that and start eating into the property tax portion as well, or if it would somehow zero out just the income tax portion.
But that should never be an issue because of this point that has not been discussed at all that I have seen -- when you apply the SALT deduction, you can choose between your state income tax or sales tax to use in the calculation. Most people in Oklahoma choose income tax because it is usually larger, and TurboTax will push you in that direction to get the biggest refund. But you don't have to accept that choice.
If I decide to file with itemized deductions, and I explicitly choose to use the sales tax option, then none of this matters at all. The fact that my state income tax liability was reduced by the PCTC no longer has any bearing on the result of my SALT deduction. So I don't have to worry about my missing form (which TurboTax can't accept) leading to penalties in the future. And hopefully I actually still get the better deal on my deductions, too, since there's a good chance the sales tax option is the larger after accounting for the state tax credit.
Unless someone has a better solution, I think this is what I will do this year. My main concern is simply the omission of the 1099-G anywhere in the tax filing - even if it would just be ignored in the calculations subsequently.
