Rec'd 1099G in 2018 for tax overpayment in 2016, a year I itemized. In 2016 I received part of the amount in the 1099G and applied it in 2017. Need help with Pub 525.

[CherylW]

I'm not clear on the applied part.  Did you apply it on your 2016 return, like on line 77 of 2016 1040?

[ardmoreroad]

I applied the state overpayment (2016) to 2017 instead of having it refunded to me.  The problem is that I forgot to include the estimated taxes I sent in for 2016 in my 2016 return. So, the state discovered my error and returned that amount to me in 2018 (they didn't get around to it until then).  The 1099G I received from the state recently for 2018, however, includes both amounts (2016 amount applied to 2017 and the amount I received in 2018) instead of just the amount actually returned to me in 2018. I am trying to use Pub. 525, Worksheet #2 to account for this but am not clear at all as to what amount to put where on that worksheet.  

[CherylW · Accepted solution]

If you received a refund, you can either get it in the mail or have it applied to your next year's taxes.  You actually DID receive that money.  You may not have cashed a check, bu you got it back in the form of reduced estimated tax payments.  So it is taxable.

There will be a question in Turbo Tax that helps you figure that out:

1.  Click Federal on the left-hand side menu.

2.  Click Income across the top.

3.  Scroll down to Other Common Income and click Show more.

4.  Click Start or Revisit by Refunds Received for State/Local Tax Returns.

Put your 1099-G in and select 2016 from the drop-down (see attached).  Turbo Tax will calculate it correctly, based on how you filed (itemized vs standard) in 2016 or 2017.