If you received a refund of state or local income taxes from last year's tax return, you may receive a Form 1099-G reporting this refund as income. If you itemized deductions on your federal return in the same year that you received the state or local refund, the refund may be considered taxable income.
Is my state or local refund taxable?
None of your refund is taxable if, in the year you paid the tax you either (a) did not itemize your deductions, or (b) elected to deduct state and local general sales taxes instead of state and local income taxes. If you are not sure if your refund is taxable, answer the following questions to find out:
- Did you itemize your deductions for your return last year? (Hint: If you did itemize, you should have a Schedule A with your copy of last year's return).
- NO: Your state or local refunds are NOT taxable (see "My refund is not taxable." Below).
- YES: Go to question 2.
- Did you have an amount on line 5 of your Schedule A?
- NO: Your state or local refunds are NOT taxable (see "My refund is not taxable." Below).
- YES: Go to question 3.
- Is the amount on line 5 for State and Local Income Taxes or General Sales Tax (ST)?
- General Sales Tax (ST): Your state or local refunds are NOT taxable (see "My refund is not taxable." Below).
- Income Taxes: Your state or local refunds ARE taxable. See "My refund is taxable." Below for how to report it.
My refund is not taxable. What do I do with Form 1099-G?
If your refund is not considered taxable, then just retain your 1099-G for your records. You would not have to report this as income on your return.
My refund is taxable. Where do I report it?
If your state or local refund is considered taxable (see above), you must report it as income. The IRS requires that you fill out a State and Local Income Tax Worksheet to determine what portion of the refund is considered taxable. By entering some basic information about your refund, TaxSlayer will automatically fill out the worksheet for you.
To enter this in the program, take these steps:
- Federal Section
- Income
- 1099-G Box 2
You must complete all information that is applicable.
If you received a 1099-G: UNEMPLOYMENT COMPENSATION, enter the information by going to:
- Federal Section
- Income
- 1099-G Box 1
For more information on the 1099-G: Unemployment Compensation Click here