1099-G

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darbillw
darbillw Member Newcomer
edited January 15 in General

I do not understand WHY I receive a 1099-G for my state income tax refund?  It's confusing (the year-to-year thing).  Can someone give examples of how this works?   In my case I pay estimated state taxes and usually overpay to be safe.  Since this money comes out of my savings and has already been taxed why is it taxed again?  I did not itemize in the year the estimated payments were made.  Can you explain this CLEARLY. Turbo tax cannot. Thanks, Bill

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  • CarleneF
    CarleneF FreeTaxUSA Agent
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    If you receive a state refund, then the next year, you'll receive a Form 1099-G reporting that refund. However, it's not always taxable. If you took the standard deduction last year, then it is not taxable on this year's return and you don't need to enter it.

    If you had itemized on your last year's return and deducted your state or local income tax with that itemization, then your state refund (1099-G) will be taxable on this year's return.

    If you always take the standard deduction, then you don't need to worry about it. It's only if you deduct the state taxes with itemizing and then also get a refund from your state.

  • CarleneF
    CarleneF FreeTaxUSA Agent
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    Both A and B are correct.

    I would recommend entering it, just in case. If it truly had no effect, then it shouldn't hurt to enter it. When you go to the 1099-G screens, our software will usually ask if you took the standard deduction or itemized. If you say that you itemized, then it will ask more questions to determine the taxable amount. Sometimes the full amount is not taxable even when you had itemized and our software will help you determine that.

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  • darbillw
    darbillw Member Newcomer
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    Let's see if I understand.

    A) If I don't itemize on my 2023 federal taxes and get a state refund for 2023, it will not be taxable when filing my 2024 federal return, correct.

    B) If I do itemize and include my state or local income taxes (including any estimated tax paid to the state or local government) as part of my itemized deductions on my 2023 federal taxes and then get a state refund for 2023, it will be taxable when filing my 2024 federal return, right? This is because of the benefit I received from that portion of my deductions affecting my federal refund amount or lowering my tax liability.

    Are both A and B true?

    Now the last question… if the state or local income taxes, although itemized, have no effect on either my federal refund or my federal tax liability, do I still have to include the state refund amount from the 1099-G on the next year federal tax return?

    Thanks!

  • darbillw
    darbillw Member Newcomer
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    Thanks, FreeTax help is most often spot on, and I appreciate that. I recommend it to others. This form caught me by surprise, and I still have trouble wrapping my brain around it without taking time to really understand it. Our tax code is too complex. But that's because we keep layering on… trying to make various interests happy! OK, off my soap box! Thanks, CarleneF

  • JMSSGV
    JMSSGV Member Level 5
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    Take a look at Worksheet 2 on page 28 here. https://www.irs.gov/pub/irs-pdf/p525.pdf