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Question

Is a Virginia PTET tax refund taxable?

Forum|Forum|1 year ago
February 16, 2025
1 reply
0 views

I have a Virginia PTET refund for 2024 and I believe this refund is taxable to the S Corporation as income in tax year 2025 since the initial estimated state payments were deducted as a business expense in 2024. Is this correct?

Not A Product Question

Employee

The IRS hasn't ruled on how a PTET refund should be handled. However, you are correct that it represents a prior year expense to the business. Under the Sec. 111 tax-benefit rule, recovered amounts that reduced prior-year tax liability should be included in current year income. The conservative action would be to report the PTET tax refund as other income on the current tax return.

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Hi Patricia,

Thank you for responding! Yes, I completely agree with you on how it should be handled. Would be nice if the states and the IRS would address this.

Thank you again!