State and local
income tax refunds are taxable if the refunded tax was deducted in a prior year
and you received a tax benefit from the deduction. Refunds are partially
taxable if your itemized deductions last year exceeded your standard deduction
by less than the amount of the refund.
So, if you
didn’t deduct state and local income taxes last year, you don’t need to pay
taxes on your refunds this year. For instance,
if you didn’t itemize your deductions in 2015 (you took the standard deduction)
then your state refund is tax free this year and does not need to be included
on your 2016 tax return. (Just keep a copy of your 1099-G with your tax
records.)
Please click Is
My State Tax Refund Taxable and Why for more information
However, if you
itemized on your 2015 tax return and included an itemized deduction for state
income taxes, then you would need to include them on your 2016 tax return.
To enter
your 1099-G for a state income tax refund in TurboTax Online (for TurboTax
Online sign-in, click Here, select
"Take Me To My Return") or Desktop, please follow these steps:
- Once you are in your tax
return, click on the “Federal Taxes” tab ("Personal" tab in
TurboTax Home & Business)
- Next click on “Wages and
Income” ("Personal Income" in TurboTax Home & Business)
- Next click on "jump to
full list" or “I’ll choose what I work on”
- Scroll down the screen until
to come to the section “Other Common Income ”
- Choose "show more",
then State and Local Tax Refunds on Form 1099-G and follow
the onscreen instructions
