Is all 1099-G always taxable for any prior year when Itemizing Deductions on Schedule A?

[sehoffma]

I amended a 2019 return where I paid State income tax well over $40,000 and itemized deductions and then received a refund in 2022 from the state reported on 1099-G for an amount well under the $40,000 I paid in 2019.  Is this refund still taxable, or am I punished for not reporting this properly in the year I filed my income taxes.

To make this more clear, the new SALT limit  only allows $10,000 even if you paid a significant amount of money above and beyond that ,$10,000 SALT limit when itemizing on schedule A.  Not only was the $10K limit exceeded for 2021, I well exceeded this amount on my 2022 taxes as well.  Does the IRS put blinders on and see only $10,000 once that tax year is over? If you receive any money back, which would NOT have been taxable in that prior tax year, why is it all of a sudden now taxable?  If I am incorrect, could someone tell me how to calculate the correct Taxable amount for that prior year?  It would seem that you should be protected up to the amount over the $10K that did not qualify as a deduction in that prior year, as it would have been ignored at that time on that prior schedule A.  Am I missing something?

[VolvoGirl]

The 1099G is for your state Refund, not tax paid.  And yes it should automatically figure out how much is taxable.  Enter the 1099G and answer the followup questions to determine how much is taxable.  

[MonikaK1]

Your state tax refund is only taxable to the extent you received a tax benefit for the state taxes you paid for the tax year to which the refund applies.

See here for further information from the IRS regarding Revenue Ruling 2019-11, which clarifies in more detail the impact the $10,000 "SALT" limit has on the taxability of state tax refunds.

When entering a Form 1099-G in TurboTax, use the section Other Common Income, Refunds Received for State/Local Tax Returns and follow the prompts for additional information.

[sehoffma]

Hi VolvoGirl,

Thank you for your fast response.  I posted the question too fast  before I reviewed my post and updated the original post to hopefully make more sense.  Could you please look at my post again, and tell if your response is still applicable?

[fanfare]

if you itemized state tax paid and you got a state refund,

that refunded amount was not really deductible on your tax return.

Instead of making you amend, it is just added to next year. there is an adjustment for sales tax.

that's the rule before SALT cap.

I'll let you figure out how to account for SALT cap.

if your property tax plus sales tax is also over 10,000, select the "sales tax instead of state income tax" option 

and this issue is moot.

@sehoffma 

[fanfare]

I hadn't seen that IRS explanation before so I'll have to study it.

[AbrahamT]

Also see HERE  Scroll down to the the section  "State Tax Refunds." 

1- Remember, it's only taxable if you itemized the year before. If you didn't itemize last year but took the standard

deduction, then the refund would not be taxable.