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Why do I need to report the refund amount listed on a 1099-G on the next year's tax return?

darbillw.3

Why is it that when I receive a refund on my PA state taxes, if I have also itemized deductions in that same year, I need to report the refund amount listed on the 1099-G on the next year's federal tax form? I don't see the relationship/reason to justify why I need to report that amount. It is money that I overpaid the state with funds that have already been taxed federally. Can anyone clearly explain this to me???

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AlexO

Stumpjumber,

That is a great question.

When you itemize your deductions, you can deduct SALT (state and local taxes). Thus, if you receive a refund of those state and/or local income taxes, you may have received a refund of taxes deducted on your federal tax return. This requires you to report some or all of the refund as taxable.

darbillw.3

I need to check what I did, but if you do itemize, but did not deduct local/state taxes yet still get a refund on your state return resulting in a 1099-G, you still need to report it on your next year return? I see the reasoning, but somehow it seems like double taxation. Our tax code needs simplified but so many hands in the pie!

JulieS

If you did not deduct the SALT, then you would generally not report it as income in the next year since you did not take a deduction for those taxes paid that were then refunded.

However, it is best to visit the Taxable State Refund screen and go to the screens and worksheets to verify that it is not taxable in your situation.

darbillw.3

Maybe this thick head finally got it. If the estimated income taxes paid (and then used as an itemized deduction) is 500 bucks and then in doing my state taxes it is found I only owed 450 bucks, thus getting a 50-dollar refund. The feds are saying that 50 bucks should now be taxed since it really did not qualify as a deduction. But aren't there instances where that $50. had no effect on the federal refund?

AndyS

Hey Stempjumper,

You are correct, if you get a refund of the taxes withheld the IRS then considers that possible income if you used those funds for an itemized deduction. There are some instances where it wouldn't have an effect, but that's not typical. Our screens do a great job walking you through those instances to determine if the refunded state taxes are taxable on your federal return or not.

darbillw.3

Thanks Andy… Since I didn't itemize last year, I can ignore the 1099-G I get this year, so it's not an issue for 2024. But I hope I can access this information when and if I need it in the future.

AndyS

Hey Stumpjumper,

You are correct! If you took the standard deduction last year, you don't need to worry about the 1099-G for your state refund this year. You should be able to find this thread later if you bookmark it at the top of the screen.