State and local income tax refunds are taxable if the refunded tax was deducted in a prior year and you received a tax benefit from the deduction. Refunds are partially taxable if your itemized deductions last year exceeded your standard deduction by less than the amount of the refund.
So, if you didn’t deduct state and local income taxes last year, you don’t need to pay taxes on your refunds this year. For instance, if you didn’t itemize your deductions in 2015 (you took the standard deduction) then your state refund is tax free this year and does not need to be included on your 2016 tax return. (Just keep a copy of your 1099-G with your tax records.)
Please click Is My State Tax Refund Taxable and Why for more information
However, if you itemized on your 2015 tax return and included an itemized deduction for state taxes, then you would need to include them on your 2016 tax return.
To enter your 1099-G in TurboTax Online (for TurboTax Online sign-in, click Here, select "Take Me To My Return") or Desktop, please follow these steps:
- Once you are in your tax return, click on the “Federal Taxes” tab ("Personal" tab in TurboTax Home & Business)
- Next click on “Wages and Income” ("Personal Income" in TurboTax Home & Business)
- Next click on "jump to full list" or “I’ll choose what I work on”
- Scroll down the screen until to come to the section “Other Common Income ”
- Choose "show more", then State and Local Tax Refunds on Form 1099-G and follow the onscreen instructions
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