Taxability of a 2022 State Tax Refund

[joelereeves]

I am doing my 2023 taxes today with Turbo Tax and entered my 2022 State Tax Refund amount, the App asked for the "Total of all payments and withholding" but it is not clear if is the State Tax withholding for 2022 or 2023.

Any idea which number I should enter?

[KrisD15]

If you used the Standard Deduction on your 2022 tax return, you needn't report the refund. 

If you Itemized, you need to enter the tax claimed on your 2022 Schedule A, or all the state tax you paid in 2022 if your state tax was limited on your 2022 Schedule A. 

This would include the withholding on income, such as your W-2 as well as state property and/or sales tax paid. 

[joelereeves]

I Itemized in 2022.

My 2022 entry on Schedule A line 5d exceeds $10,000

My 2022 entry on Schedule A line 7 is limited to $10,000

Are you saying to use the number from my 2022 Schedule A line 5a when entering my State Tax Refund into my 2023 return?

[AmyC]

Use the line 5d amount which exceeds $10,000 so the program can determine if there is any taxable amount. 

[joelereeves]

why doesn't Turbo Tax fill in the correct number for me, I imported data from the 2022 file, when I began my 2023 return?

[MarilynG1]

Yes, if you transferred your 2022 return into 2023, TurboTax should fill in the amount of State Tax Refund from last year for you.

The 'Total of of Tax Payments and Withholding' amount applies to 2023 and will also be filled in for you, after entering all your W-2's and 1099's that have withholding. 

You generally have no need to enter any Other Taxes Paid, unless they are not included on any document you entered. 

Here's more info on State Tax Refunds. 

[joelereeves]

Turbo Tax did fill in the amount of the State Tax refund, but its didn't fill in the total State and Local Tax (SALT) number that is used to determine whether the State refund is taxable or not. That is why I was unsure which number was needed. With the $10,000 limit on the SALT deduction it could be for some but not others.

[LindaS5247]

The total amount of "payments and withholding" would include any payments that you may have made to your state or locality for 2022 (it's for the previous year). 

 Any state or locality withholdings from the previous tax year, would include the following:

• Amounts withheld on your W-2, W-2G, and 1099
• Estimated tax payments for 2022
• Add any taxes paid in 2023 for 2022 (it's common for the fourth quarterly payment to be made in January)
• Overpayment from 2021 applied toward your 2022 return
• Payments made with an extension of time to file
• Payments made when you filed your return
• Refundable credits

[Keith L]

2023 TurboTax automatically carried over to the 2023 return as adjusted gross income a $5 state income tax refund from the 2022 return prepared with TurboTax.  Recomputing the 2022 return (with 2022 TurboTax) without the $5 deduction does not result in an increase in the tax liability reported on the 2022 return because the 2022 Tax Table was required to be used to compute the tax.  The taxable income for 2022 without the $5 deduction fell with the same taxable income bracket; therefore, the tax liability did not change with the deduction.  Under Sec. 111 of the Internal Revenue Code, the $5 refund does NOT have to be reported as income for 2023 because no tax benefit resulted from the deduction claimed on the 2022 income tax return.  How do I override the $5 entered as income on the 2023 return by TurboTax?   

[DawnC]

The $5 is listed as income on your summary, but it is not included in your taxable income.   If you took the standard deduction the previous year, the refund is not taxable.   Are you saying, it is included with taxable income on Line 15 of Form 1040?

Report last year’s state or local tax refund, and we’ll figure out if it’s taxable or not. (TurboTax automatically entered the $5)

If all three of the following are true, your refund 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.

Even when your refund is taxable, it may not be the entire amount. It depends on how much the deduction affected your refund or tax bill. Just answer a few simple questions about last year’s refund, and we’ll calculate the taxable amount for you.   @Keith L 

[joelereeves]

I would prefer you take your question elsewhere, rather than confuse the issues on my original question

[Keith L]

It WAS incorrectly included in taxable income on Line 15 of Form 1040.  I finally was able to get it excluded from taxable income by completing the entries on Part VI Recovery Exclusion From Income Tax Credits, Lines 26 through 35 of the TurboTax  2023 State and Local Tax Refund Worksheet.  By doing that, the program completed Part III of the worksheet correctly to show the $5 as a recovery exclusion on Line 11 of Part III and not a Taxable Refund on Part IV, Lines 12 and 14 of the worksheet.

[Lance0]

which box in W2 states as total payment and withholding?

[PaulaM]

Box 2 for Federal taxes withheld.

Box 17 for State taxes withheld. 

[sansin]

I have a related question. I lived in NJ but worked in NY. So received a refund from both states. When I enter the 1099G for each state should I enter the same amount for 'Total of all your payments and withholding' both times.