1099-G for 2024 can't be entered

[MayaD]

If all three of the following are true, your refund (or part of it) counts as taxable income:

• You itemized deductions last year, instead of taking the standard deduction.
• You claimed state and local income taxes (not general sales taxes).
• Claiming the deduction helped you increase your federal refund or lower your tax bill.

When you enter your information and answer the questions, TurboTax will calculate the taxable amount. 

If you transferred last year’s tax data to this year's return, your state and local refunds are automatically brought over with your other tax info.

If not, enter your 1099-G form:

1. Go to wages and Income
2. Go to Other Common Income
3. Select Refunds Received for State/Local Tax Returns

[jessicawright]

Which brings me back to the original problem. The 1099G had tax year 2024 in box 1 and TurboTax will not allow

me to enter it. 

[srtaylor1317]

There are multiple threads that address the challenges you’ve outlined. The reality is no one knows for sure. For myself, I am planning to sit on the 1099-G for a year and report it next year, which is when a 1099-G 2024 would typically be issued. I’m guessing the IRS matching software won’t even look for it until then. I plan to continue watching for news and rulings on this topic and will amend my return if needed. 

[Bi11iard]

@KrisD15 

It is more to share information and to clarify what the tax experts have posted, which is conflicting information. This is not a taxable grant.  The Parental Choice Tax Credit (PCTC) is not a tax refund. It is not income. This is a tax credit, paid to the school, not to the individual.  I contacted the Oklahoma Tax Commission, and they confirmed to me that this is NOT reportable on my state income tax. I also fail to see where this would ever be reportable on a Federal return, even if you did itemize.

[srtaylor1317]

It’s an odd situation, but basically the rules of tax credits are that they CAN be federally taxable IF you itemize in a particular year and deducted that year’s withholding from your income (when you itemized). 

Basically this ensures money that you deducted from federal taxes is added back to your income in a later year if you get it back from the state.   

what is “odd” is that you could end up being taxed for a far larger amount than you ever had withheld in the first place. Basically, this is a byproduct of the legislature wanting to use the language of tax credits instead of education savings accounts. Having spoken with a number of people involved in the original legislation, I can assure you this is an unintended consequence, and not by design.

if the IRS confirms that this is federallytaxable in the future, it will change the calculus of whether or not people who itemize should take the state income tax or state sales tax as a deduction. Happy for the experts to correct me if I am miss-stating anything here. 

[jb6001 · Accepted solution]

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.

[srtaylor1317]

This is a great analysis of the underlying tax structure and how to navigate itemizing deductions. Full agreement that the choice between deducting sales tax and income tax creates a workaround opportunity.  As a school administrator, I deal with the OTC on a weekly basis navigating the quirks of the program. I do wish it was just an ESA, but overall am pleased with the OTC's administration of the program. The only true "problem" with the program, as I see it, is issuing the 1099-G for the current year. It should just be issued a year later and it would be easy. I will ask our OTC rep the next time I have a phone call with him, if he can explain the rationale.

[jb6001]

They don't have much choice in the matter of issuing the 1099-G forms. It must be reported in the year the money was paid. In fact, my 1099 this year includes 3 semesters worth of PCTC payments because the OTC has been so inconsistent - last school year they paid the spring semester out in January, but this school year they paid it out in December. (I suspect many people have the same problem.) It really has nothing to do with the year the funds were intended to service or anything, just when they mailed the check.

The key issue is that they have taken what should really be described as a grant or scholarship and made it into an income tax credit. Tax credits are typically paid when you file your taxes every April, but the state did not want to make people wait a year to get their money. So instead they pay this tax credit in advance, in installments conveniently coinciding with school semesters so that families aren't paying out of pocket and getting reimbursed later. Thus we have a 1099-G mess because the money is paid a year early and TurboTax thinks it is so smart as to prevent a tax refund 1099-G from ever being entered for the current year, because they assumed it can never happen.

I blame Oklahoma for coming up with this bizarre system, but it's really TurboTax's problem to fix, because Oklahoma is sending out the forms exactly correctly, and we're all stuck in the middle.

[srtaylor1317]

The 3 checks you received are the result of increased efficiency in processing apps, changed legislation that changed the application deadlines and processing schedule, and preparation for the transition to single checks mailed in August instead of semester checks, per updated legislation.

I disagree that TT has anything to fix. Federal law does not have a mechanism for reporting a 1099 until a year later. What is frustrating is that the OTC is issuing the 1099-G now. Yes, the year in box 2 (if i recall correctly) is correct, but there is no reason for them to send this 1099-G now, instead of waiting a year, and issuing both 1099-G forms for tax year 2025 at the same time. I currently get 2 1099s from the state at the same time, but for different years.

[jb6001]

I've been asking friends who also received the PCTC 1099-G what their tax professionals are telling them.

So far one of them sounds like he just pretended like both 1099-G forms were for the previous year as if for a tax refund. That's obviously wrong, so I hope it was just a miscommunication, since I wasn't able to speak with him directly.

I also called the local H&R Block and the person I spoke with had clearly dealt with this for several people, including their own child in private school, and said that their office had also communicated with other H&R Block's in the state and all agreed that the new 1099-G needs to be added as taxable income under the "Other Income" section (Schedule 1, Line 8 ). There's about 30 different sub-items on "Line 8", so I assume they put it under 8z, which allows you to write in whatever you want with a short explanation. Their view was that the instructions on the 1099-G itself, which say the form can be disregarded unless itemizing, is probably not correct and that Oklahoma is mis-using the 1099-G form or using the wrong one. But they also acknowledged that this is just their best advice at this time, and it could be wrong. It will require law suits and court rulings to sort this out, and no telling when that will actually happen. Amended returns may be in our futures 🙂

One point H&R Block made was that the Oklahoma tax form (section 511-C) gives a spot to deduct the amount from the 1099-G back out of the federal AGI so that it is not taxed by the state. And you couldn't deduct it out of the AGI unless it was in there in the first place. I think that's a valid argument, except for the detailed OK 511-C instructions include the caveat "... to the extent such payments are included in your Federal AGI. Provide documentation to support the amount claimed and a copy of your federal return." That clause in the instructions leaves the door open for interpretation or including none, some, or all of the PCTC amount in the federal AGI. Still, my solution of simply opting for the state and local sales tax deduction instead of state and local income tax deduction would not do anything to change my federal AGI, so then that's also easy to just skip the box on the OK 511-C as not applicable.

I'm not convinced that the "Other Income" approach is correct, but it is conservative in the sense that it should give you your worst case tax scenario, and if the law is clarified in the future, you might be owed a refund, but definitely wouldn't owe anything additional. It also simplifies the OK tax form, in that you can simply claim the full PCTC amount in section 511-C without having to figure any partial amounts that need to be deducted.

If you want to do the "Other Income" approach in TT, then you would find that at the very end of the Personal Income, under Miscellaneous Income, and the very last section called "Other reportable income". I tried it both ways, and in my case, my tax refund only goes down by about $500 compared to electing the state and local sales tax option. I think the impact is mitigated because of the (new in 2025) higher SALT cap in effect this year, so I can deduct the full state income tax amount rather than it being capped as in years past.

I'm really not sure anymore - I don't think treating the PCTC as "Other taxable income" makes sense, but it is a conservative approach. I've read through the relevant sections of Publication 525, but all of the instructions are written based on the premise that the 1099-G is reporting money that you deducted in a previous tax year, which is not the case here.

This law firm (https://www.dsda.com/oklahoma-parental-choice-tax-credit-update/) pointed out a couple years ago that it ultimately depends on whether the federal government characterizes the tax credit as a scholarship or a grant. Basically, they should be looking at it in terms of its actual implementation, regardless of what the OK state legislature chooses to call it, and making a ruling based on that. As such, there is a real possibility it could be deemed a taxable grant and be fully taxable. But no need to speculate too much on what we have no control over.

[srtaylor1317]

You can certainly make the argument that the most risk-averse path is to treat it all as a taxable grant, but that is not what the OK law says, nor was it the legislative intent. I realize it's technically possible the IRS will disregard the language of the legislation, but I disagree that it's likely. The reason the OTC issues a 1099-G is because they ARE treating it as an income tax credit. So, I'm not losing sleep over it, nor am I reporting this as a taxable grant when the language of the legislation says that it is not.

I do like your idea of evaluating the trade off between income and sales tax deduction.