State and Local Income Tax Refunds, Credits and Offsets Reported on Form 1099-G
State and local income tax refunds may be taxable if all of the following occurred:
- You took the state and local income tax as an itemized deduction in the prior year.
- You received a benefit from taking the deduction. Such as, the refund increased your federal refund or reduced your tax liability.
- You received a state refund, even if you did not receive your 1099-G.
If any of the following conditions occur, your state and local income tax refund is not taxable:
- You took the standard deduction in the prior year (you did not itemize your deductions);
- You itemized and elected to deduct state and local general sales tax instead of state and local income taxes; or
- Last year's tax return was subject to the Alternative Minimum Tax (AMT) and the amount of last year's state or local tax refund was less than the amount disallowed under AMT. Because you weren't allowed to deduct state or local taxes paid on last year's AMT return, you won't have to declare the refund as income on this year's return.
When last year's tax information is imported, TurboTax figures out if your state or local tax refund is taxable (or not). Here are some common questions and answers:
If you itemized deductions last year and deducted your state and local income tax, your state income tax refund may be taxable even if you didn’t receive your 1099-G.
To find your state income tax refund you have the option to:
- Get your refund amount from your copy of your state tax return (line numbers and locations vary by state).
- Go to your State Department of Revenue website to look up your state issued 1099-G records.
Note: If you used TurboTax in the previous year, your state income tax refund information will transfer to your current year return.
TurboTax is properly recording my previous year state refund on my income summary, but the amount is not showing as taxable income on my current return?
There are several reasons why you may not be taxed including:
- If you did not itemize your deductions and took the standard deduction.
- If you deducted the sales and local general tax and not the state and local income tax when you itemized your deductions.
- If your state and local income tax deduction did not increase your federal refund or reduce your tax liability.
Note: State tax refunds may be partially taxable if the taxpayer’s itemized deductions exceed the taxpayer’s potential standard deduction by less than the amount of the state tax refund.
Don’t worry, we are here to help. TurboTax makes all of the behind the scene calculations for you.
For more information, see IRS Publication 17, Reporting Taxable Payments.
Is a state tax refund that was applied towards my taxes for next year (not refunded) still taxable as income?
Maybe. It does not matter if you get a refund or apply the amount to the next year. The amount may still be taxable as outlined at the beginning of this article.
TurboTax assists you in figuring out how much of the state tax refund is taxable.
If you filed Married Filing Jointly (MFJ) the previous year, the state will report the state refund on your 1099-G and to the IRS under both of your names and social security numbers as though you were still married.
If this is the case, and state taxes were deducted as itemized deductions, you would typically divide the amount reported on 1099-G or refunded on your state taxes between you and your former spouse.
If you filed Married Filing Separately (MFS), then you and your former spouse will receive separate forms and you will only be responsible for the refund amount on your 1099-G or separate state return.
Note: Your divorce decree may state specific amounts to be divided between you and your former spouse on your tax return. If so, you should follow the divorce decree.
We filed separate returns before and now we are filing Married Filing Jointly for the first time. Do we add our numbers together from the previous year to figure out if our state refund is taxable?
Yes, you should add the state income tax refunds for you and your spouse as well as the other required information.
I received refunds from my prior year amended federal returns. Do the refunds count as taxable income? I do not itemize.
Federal tax refunds are not taxable. However, you may have taxable interest income related to those refunds if you received interest on the refund amount from the IRS.
If this is the case, you should receive Form 1099-INT from the IRS. This interest is entered the same way that interest from a bank or other source is entered. For information about entering interest income, see Form 1099-INT Interest Income.
You need the following information:
- Form 1099-G from the state or states that sent the refund.
- Your previous year’s 1040 and Schedule A. You will be required to enter your allowable itemized deductions from Schedule A, and your adjusted gross income from your Form 1040.
- Your previous year’s state return which will show your refund if you did not receive your 1099-G..
Note: If you used TurboTax to file your previous year’s return, TurboTax will transfer your prior year’s information to your current tax return.
If you used TurboTax to file your previous year return, your adjusted gross income should transfer into your current return.
If it does not transfer, the prior year adjusted gross income is on your prior year Form 1040.
Here's how to enter your tax refund information in TurboTax:
- In TurboTax, search for "tax refunds" (either lower case or caps), and
Select "tax refunds, state and local" from the drop-down list. The search box is next to the Find button.
- With the search result showing, click Find to go to the Did you have any of these types of income? screen.
- On that screen, click Yes to go to the State and Local Tax Refunds and Other... screen.
- On this screen, check the box next to State or local income tax refunds and click Continue.
- On the following screens, follow the prompts.
For more information, see Information About 1099-G.