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1099-G Question

Hi, I got a question on 1099-G part in Wages & Income : 

step 1 - "Tell us about your refund" : filled the numbers for the NY state refund received in 2023

 

step 2 - "Did Any of These Apply to You?" : chose "None of the above", as my case is not in the 4 sepcial cases

step 3 - "Let's See if Your 2022 New York Refund is Taxable" : I itemized my deductions in 2022, and I claimed myself last year.

 

step 4 - "Confirm Your 2022 Federal Return Info" : here comes the confusion - the last line is "Itemized deduction for total taxes", but it is auto-filled as $10,000 which is identical to "State and local taxes after limitation" (i.e. Schedule A (Form 1040) Line 7).
But the name seems closer to the line 17 of Schedule A (Form 1040), which is larger than $10,000. How should I proceed?
I'd appreciate any advice on this.

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2 Best answer

Accepted Solutions
KrisD15
Expert Alumni

1099-G Question

So, since you itemized deductions (including state tax paid), if you then get some of that state tax refunded, you migh need to claim some of that state tax refund as income.

 

It was always a bit difficult to understand and the SALT (State And Local Tax) limit made it even more complicated.

 

If your state tax deduction was limited to 10,000, what was the reduction? 

In other words, if you paid 12000 in state tax, which was limited to 10,000, then the refund up to 2,000 would not be taxable.

 

ADDITIONALLY if you itemized and claim all the state tax (so the SALT limit is not relevant) then you have to look at the standard Deduction. 

In other words, if you itemized 26,000 and got a 400 refund, but you could have taken the standard deduction of 25,900 so only 300 is taxable. 

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KrisD15
Expert Alumni

1099-G Question

The 10,000 would be 5,000 if you filed Married Filing Separately in 2022.

 

1. Yes, if line 5d is more than 5e, your deduction was limited.

 

2. Not quite. 

     Not line 7, line 5d

     Your 2022 Schedule A line 5d shows the state tax you paid before the SALT limit, then 5e might reduce the amount on 5d to 10,000 because of the SALT limit. If the amount listed on line 5d is more than 10,000 + your refund, the refund is not taxable. 

 

3. Did you have more tax listed on line 6?  For the SALT limit and state refunds, we look at line 5d.

Line 7 is USUALLY the same as line 5e, but you must have claimed foreign tax or something else. 

 

The point is, if there was state tax that you paid, but could not claim (because of that SALT limit) then a state refund in the amount of (or less than)  the tax disallowed is not taxable. 

 

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8 Replies

1099-G Question

Just tried 2 paths from the step 4 :

Yes -> directly goes to "Good News! Your 2022 refund is not taxable"

No -> after ~10 more small steps requiring numbers in 2022 1040 & schedule A (most of which were autofilled), the second last step shows correct  
"State and Local Taxes after Limitation (line 5e) " (10,000)
and "Total Itemized Deductions (line 17)" (more than 10,000) ; 
and now there are two choices buttons other than "Back" :
"Make My Full Refund Taxable" or "Continue".
"Continue" just gave me "Good News! Your 2022 refund is not taxable", which is great.

Does everything look fine here? I definitely don't want to go for "Make My Full Refund Taxable" unless it's absolutely necessary.
In any case, this part is confusing and unreasonable to me, because 2022 tax refund from state and local was due to me paying more taxes in 2022, and if federal is taxing on that, then it's basically a penalty for paying more tax, which sounds quite contradictory.

KrisD15
Expert Alumni

1099-G Question

So, since you itemized deductions (including state tax paid), if you then get some of that state tax refunded, you migh need to claim some of that state tax refund as income.

 

It was always a bit difficult to understand and the SALT (State And Local Tax) limit made it even more complicated.

 

If your state tax deduction was limited to 10,000, what was the reduction? 

In other words, if you paid 12000 in state tax, which was limited to 10,000, then the refund up to 2,000 would not be taxable.

 

ADDITIONALLY if you itemized and claim all the state tax (so the SALT limit is not relevant) then you have to look at the standard Deduction. 

In other words, if you itemized 26,000 and got a 400 refund, but you could have taken the standard deduction of 25,900 so only 300 is taxable. 

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KrisD15
Expert Alumni

1099-G Question

"But the name seems closer to the line 17 of Schedule A (Form 1040), which is larger than $10,000. How should I proceed?"

 

Not sure what this means.

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1099-G Question

I meant :"Itemized deduction for total taxes" is closer to "Total Itemized Deductions", the line 17 of Schedule A (Form 1040).

DMarkM1
Expert Alumni

1099-G Question

Yes the name "Itemized deduction for total taxes" refers to the amount of the itemized deduction taken for total taxes paid (line 7 on Schedule A).  Typically, if the SALT limit was applied, that would be $10,000. 

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1099-G Question

@KrisD15, I appreciate your help.
Let me clarify a few things to understand better : 

(1) " state tax deduction was limited to 10,000" -> does this refer to the line 5e of Schedule A (Form 1040) Enter the smaller of line 5d or $10,000 ($5,000 if married filing separately) ? 

(2)  If so, if Taxes You Paid (line 7 of Schedule A (Form 1040)) is greater than 10,000 + (my state tax refund), then state tax refund is not taxable, is that right? (This is indeed the case.)

(3) In addition, "if you itemized and claimed all the state tax (so the SALT limit is not relevant)" -> does this mean that all the state tax is included in Total Itemized Deductions (line 7 of Schedule A (Form 1040))? I don't know how that's possible because there's SALT limit (Enter the smaller of line 5d or $10,000 ($5,000 if married filing separately), but I didn't do so anyway.

I think (1) and (2) are critical to determine my tax return, I'd appreciate your advice.

KrisD15
Expert Alumni

1099-G Question

The 10,000 would be 5,000 if you filed Married Filing Separately in 2022.

 

1. Yes, if line 5d is more than 5e, your deduction was limited.

 

2. Not quite. 

     Not line 7, line 5d

     Your 2022 Schedule A line 5d shows the state tax you paid before the SALT limit, then 5e might reduce the amount on 5d to 10,000 because of the SALT limit. If the amount listed on line 5d is more than 10,000 + your refund, the refund is not taxable. 

 

3. Did you have more tax listed on line 6?  For the SALT limit and state refunds, we look at line 5d.

Line 7 is USUALLY the same as line 5e, but you must have claimed foreign tax or something else. 

 

The point is, if there was state tax that you paid, but could not claim (because of that SALT limit) then a state refund in the amount of (or less than)  the tax disallowed is not taxable. 

 

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1099-G Question

Wow, this clarifies everything!

 

For 2, I meant line 5d, not line 7 (since line 7 is already capped by 10,000 as long as line 6 is empty, as you mentioned). And that's my case. 

 

I think my confusion was due to significant amount in line 10 Interest You Paid , which increased line 17 so that it's more than 10,000.

 

Anyway, thanks a lot! 🙂 

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