1099-G for transfer of 2018 state taxes from one state to another

[Valentinoboxer]

A 1099-G was issued in 2020 because state withholding was incorrectly done by the employer for the wrong state in 2018. It took me over a year to get it returned and sent to the correct state. It was a net zero to me but was reported as this refund. I can find how to report the 1099-G refund but then am charged federal taxes on it. I cannot figure out how to enter the transfer (payment) to the new state to net it at zero. I see some options for reporting 2019 state paid taxes but those are separate.

[KathrynG3]

If the deductions were itemized in 2018, then a tax benefit has been received and the 2019 refund issued in 2020 would be taxable. 

For more information, see: Where do I enter a 1099-G for a state or local tax refund?

@Valentinoboxer

[Valentinoboxer]

Where do the state taxes paid in 2020 for 2018 to the other state go on the return? The refund was turned directly around and paid to another state, not pocketed. Or, would these be itemized just like 2019 state taxes paid in 2020? The problem then is that state taxes "paid" in 2020 are much in excess of the $10k cap (including both 2019 and 2018), even though they technically weren't, they were just at the wrong state. 

I received a corrected W2 for 2018 for this error to resolve the state issue. Should I be doing some amendment on the federal to fix this the right way?

[KathrynG3]

The state taxes for 2018 paid in 2020 go in the Deductions & Credits section. To do this in TurboTax, follow these steps:

• From Deductions & Credits, scroll down to Estimates and Other Taxes Paid.
• Select Income Taxes Paid and Start.
• Scroll down to Other Income Taxes Paid in 2020.
• Select Payment for 2018 or a prior year state or local income taxes paid in 2020 and Start.

Yes, the deduction would appear to be limited. But, it is still useful to enter the details for your records. In fact, since the income taxes are capped, the tax refund may only be partially taxable. See: Are State Tax Refunds Taxable? | The TurboTax Blog

Keep in mind that tax returns are filed on a cash basis. Therefore, the 2018 refund must be reported in the year that it was received. 

The federal return would not be affected in 2018, so there is no need to amend it. However, the state returns would potentially need to be amended. When entering the states in TurboTax for two states, the process must begin with where you lived at the beginning of 2018 and end with the state where you lived at the end of 2018.

See: 

How do I amend a prior-year state return?

Support for downloading the 2018 .tax file for TurboTax Online.

How do I file a part-year state return?

How do I allocate (split) income for a part-year state return?

@Valentinoboxer