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 (did not itemize your deductions) in the prior year;
- 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.)
Don't worry, TurboTax will figure out if your state or local tax refund is taxable (or not). Here are some common questions and answers:
- I did not receive my 1099-G for my state income tax refund. Is the refund still taxable?
- TurboTax is properly recording my previous year state refund on this years income summary, but the amount is not showing as taxable income on this year’s return?
- Is a state tax refund that was applied towards next year's taxes (not refunded) still taxable as income?
- I got divorced. Is my state refund taxable to me?
- We filed separate before and now we are filing married filing joint for the first time. Do we add our numbers together from the previous year to figure out if our state refund is taxable?
- I received refunds from my amended federal returns for prior years. Do the refunds count as taxable for this year? I do not itemize.
- What information will TurboTax require to figure out if my state income tax refund is taxable?
- What if I do not know my prior year adjusted gross income? How do I get it?
- Where is the state and local income tax entered in TurboTax?
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 return (line numbers and locations vary according to 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 this years income summary, but the amount is not showing as taxable income on this year's 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 the behind the scene calculations for you.
For more information go to the IRS Publication 17 Reporting Taxable Payments website.
Is a state tax refund that was applied towards the next year's taxes (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 still maybe taxable as outlined at the top of this article.
TurboTax will assist you in figuring out how much of the state tax refund is taxable.
If you filed married filing joint 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, 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 before and now we are filing married filing joint 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. See Information about Form 1099-INT for information on entering interest income.
You will need the following:
- 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, line 29 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.
TurboTax will do all of the calculations for you.
Note: If you used TurboTax to file your previous year’s return, TurboTax will transfer your prior year’s information to your current return.
If you used TurboTax to file your previous year return, your adjusted gross income should transfer.
If it does not transfer, the prior year adjusted gross income is on your prior year Form 1040.
Here's how to get to the state and local income taxes screens in TurboTax Online:
- Select the Tools button in the upper right-hand portion of the screen.
- Select Topic Search.
- When the window opens, type "state and local tax refund" into the box, select the item, and then select GO.
- Follow the on-screen instructions to enter the information from your state and local tax refund.
Here's how to get to the state and local tax refund screens in TurboTax desktop or CD/download version:
- Enter your cursor into the search box in the upper right-hand portion of the screen.
- Type "state and local tax refund" into the box, select the item.
- Follow the on-screen instructions to enter the information from your state and local tax refund.
For more information see Information About 1099-G.
