They had the option of deducting either state and local income taxes or general sales taxes. If you chose general sales taxes, none of your refunds are taxable. You can also be sure to claim your state tax refund as income if you broke it down, but didn`t make an individual deduction for state and local income taxes. The $10,000 limit on the state and local tax deduction (SALT) has been controversial since it was passed under the Tax Cuts and Jobs Act (TCJA). The IRS issued guidance in late 2018 on the impact of government tax credits on circumventing the border. Now, the IRS has addressed another point of confusion: whether state tax refunds are still taxable on a federal return. The answer is yes, but the calculation is different than it was before the SALT restriction came into effect, and fewer taxpayers have to pay. My federal tax bracket was lower in 2011 than in 2012. But I received a refund from the government in 2012 for my overpayment of state taxes in 2011. Do I have to pay tax on the refund at my higher tax rate for 2012 or is there a way to pay it at my lower tax rate for 2011? Look at line 5a of your plan A from the previous year. Your refund is not taxable if the box is checked. The IRS wants you to indicate whether you`re deducting sales taxes instead of income tax by checking the box on line 5a, and there`s no correlation between a sales tax deduction and your state tax refund. Now you need to determine whether you have deducted sales taxes or income taxes.
Keep in mind that state refunds are not taxable if you have broken down and elected to deduct state and local sales tax instead of state income tax. Most tax filing programs, such as Turbo Tax, automatically calculate the taxable portion when you enter the amount specified on Form 1099-G. In the year you receive this refund, the IRS says you`ve already reduced your taxable IRS income by a portion of the refund amount. So they basically want you to report it as taxable income now that you receive it. It is not taxable by the state, but only by the IRS. The state tax refund does not come from the IRS, but from the state. If you broke down and subtracted the amount of state taxes you actually paid that year from Schedule A, you reduced your taxable IRS income by that amount. If you have chosen state and local income taxes, your state refund is taxable. However, it is taxable only to the extent that it is higher than the refund you would have received if you had chosen the largest refund from these: In New York, if you can deposit such a deposit for your car insurance, you don`t need to buy car insurance and make monthly payments to a carpet shovel company! So why not also with income taxes! Don`t worry about knowing these tax rules, TurboTax will ask you simple questions about yourself and give you the deductions and tax credits you are entitled to based on your answers. If you have any questions, you can communicate live via a disposable video with a TurboTax Online tax professional to answer your tax questions.
TurboTax Online tax experts are available year-round in English and Spanish and can also review, sign and file your tax return. Situation 2: Beth paid $5,000 in local property taxes and $7,000 in state income taxes in 2018. Due to the federal SALT restriction, Beth could only deduct $10,000 of the $12,000 in taxes paid. Including other individual deductions, she claimed a total of $15,000 in individual deductions on her 2018 federal return. In 2019, Beth received an income tax refund of $750 due to an overpayment of state income tax. I searched the internet for an hour to find the answer to the question „WHY“, the refund of a previous year is taxable in the current year. I thought based on this title, I would get help figuring out WHY. But every article that contains it simply describes WHAT and HOW, but not the reasoning behind it. The money I sent beyond need has already been taxed once as part of my total income. Why tax it again next year? Please explain! It doesn`t make logical sense to me, but I guess there is some logic here. A general rule: If you haven`t deducted state and local income taxes in the past year, you won`t have to pay taxes on your state and local tax refund this year.
For example, if you didn`t break down your deductions last year and instead made the standard deduction, your state tax refund from the previous year will be tax-free that year. Before we get to the heart of the matter, know that there are times when your national and local tax refund is not taxable – we`ll dive into this scenario first. It is possible that your state refund is taxable income. You may need to claim it in whole or in part if: Taxes are confusing. If you have any questions, an accountant or your state`s tax or tax department website can provide more information. Untaxed refund. In this situation, the state income tax refund is not included in federal revenue. If Beth had retained only the exact state and local taxes owing, her state and local tax deductions would have remained the same ($10,000) and her itemized deductions would have remained the same ($15,000). She received no tax benefit by paying too much $750 in state income tax in 2018. Therefore, it is not required to include the state income tax refund in the 2019 gross income. The rules vary from state to state that levy income tax.
Many states require you to file a state tax return if you filed federally. Some states don`t charge taxes if you`ve earned less than a certain amount or lived in the state for only part of the year, while other states require you to do so if you`ve only been a short-term resident. First I paid my federal tax, then state tax, then local tax. I overpaid the $50.00 local tax and received 1099-g in the mail from the local tax. I don`t understand. I have already paid for this by paying the commitment first, as I am self-employed and only use the standard deduction. Does this mean I still have to submit and pay for this 1099-g? If not, what do I do with it? Example: You received a $300 refund in 2021 for your tax overpayment in 2020 and made the standard deduction. You received a Form 1099-G that reflects the $300 refund. You don`t need to include this as income on your 2021 return. The „Remedies“ section of IRS Publication 525 explains what a recovery is and what to do with different types of restores. A recovery is the repayment of an amount you deducted or credited in a previous year.
The „Collections“ section explains when to include collections on your tax return and how to calculate these recoveries. It also includes spreadsheets, such as Worksheet 2, to calculate individual print recoveries. You cannot claim and claim a state and local income tax deduction if you claim the standard deduction on your federal return. Your refund is not taxable if you made the standard deduction. Hi Shelby, TurboTax chooses the option that maximizes your deductions, but you also have the option to choose sales tax deduction or state income tax. We`re sorry you didn`t see the option of choice. You can change your taxes for free and TurboTax will guide you through the change. Thank you, Lisa Greene-Lewis, I am facing exactly this problem. I received a letter from the IRS stating that the state reported that I received a $1200 refund check in 2013 for paying too much state tax. Now my $1200 counts as extra income added to my total income for this year (2013). Now they sent me a letter saying that I owed them federal taxes on that money.
I called the IRS number that sent me 1099 and the lady who answered the phone didn`t explain why I have to, but I could answer yes or no to the form and return it with my reasoning about why I didn`t think I owed the right documents.
