1099-G state tax refund reporting issues on TT

[fhfounrbiuygvki1]

Background:

I did itemized deduction in 2023 and got CA state tax refund of $4639. Consequently I have received form 1099-G for the same amount.

In 2024 form I enter the 1099-G on the TT desktop application. I have 2 issues:

1. TT form entry issue:

My 1099G form has only box 2 and 3. The TT software gives option to select type of payment received— I see “taxable grant” and “business or farm tax refund” as the most relevant selections—- none of which directly mention my case ie.. state tax refund. Anyways, I proceed with “taxable grant” option but TT says taxable grants should be read out from box 6 of 1099-G….  However, I have only 2 boxes in my tax 1099G tax form!

2. 1099G impact issue:

If I do enter the tax refund if $4700 to TT box 6, I see my federal tax increase by $1700 and state tax increases by $500. 
Since 1700/4700= 35% approx I am curious what is the math behind this amount? Are taxable refunds taxed at 35%?

[MonikaK1]

It sounds like you may not be in the right place to report the 1099-G. Here are the steps to enter a 1099-G for a state tax refund in TurboTax Desktop, if you claimed your state taxes paid as an itemized deduction:

1. Select Federal Taxes (in Home & Business, select Personal).
2. Select Wages & Income (in Home & Business, select Personal Income).
3. Select I'll choose what I work on.
4. Scroll down to 1099-MISC and Other Common Income.
5. Select Start or Update for State and Local Tax Refunds on Form 1099-G.

A state tax refund from filing the prior year's taxes would only be taxable to the extent there was a tax benefit - i.e., you took an itemized deduction for taxes paid. 

If you are entering a state tax refund received in 2024 as income and reported on Form 1099-G, TurboTax will ask how much you deducted for state and local taxes in 2023 (line 5 from Schedule A).

For "total of all your payments and withholdings", 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, 2023), including:

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

 - Estimated tax payments for 2023 (including any paid in 2024 for 2023 - it's common for the fourth quarterly payment to be made in January)

 - Overpayment from 2022 applied toward your 2023 return

 - Payments made with an extension of time to file

 - Refundable credits

You can find most of this info on your 2023 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.

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

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

See this TurboTax help article for more information about whether you need to report your state tax refund from last year as income.

If your state tax refund is taxable, it will be taxed at the same rate as any other ordinary income.