TurboTax is using Sched 1 Line 1 worksheet to calculate taxability of my state tax refund when it shouldn't

Forum|Forum|2 years ago
January 31, 2024
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I used the QDCG worksheet to calculate my 2022 taxes, which were zero because my QDCG income far exceeded my taxable income. Pub 525 says you don't use the Sched 1 Line 1 worksheet in these circumstances to determine the taxability of a state tax refund. It's actually not taxable, but I can't figure out how to tell TurboTax not to use the worksheet. Is there a way to get TurboTax to handle this properly or should I just delete the worksheet and not enter into TurboTax the refund reported to the IRS on a 1099-G?

Ask the Experts - Early Filers - Jan 2024

Best answer by KrisD15

That is correct, if NOT CLAIMING the state tax on the 2022 would have the same effect on your 2022 federal tax liability, you needn't report the 1099-G.

Keep the copy of the 1099-G with your tax file but, in your situation, don't enter it into the TurboTax program.

DawnC

Employee

Did you take the standard deduction on your TY 22 return? If so, the state refund is not taxable. Taxpayers who itemize their deductions on their federal income tax returns and receive a state tax refund must include the refund in income only if they deducted the state tax paid. Because of the $10,000 limit on itemized deductions for state income and property taxes, some itemizers are not able to deduct all the state taxes they paid and do not need to include a refund in income.

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benfdcAuthor

I itemized. The issue is that even if I had not entered my state taxes on Schedule A my tax liability would still have been zero because all of my taxable income was QDCG and in the 0% bracket. The IRS says the refund is not taxable in 2023 if there was no tax benefit from claiming the deduction in 2022. See Pub 525 (2003) page 25.

KrisD15Answer

That is correct, if NOT CLAIMING the state tax on the 2022 would have the same effect on your 2022 federal tax liability, you needn't report the 1099-G.

Keep the copy of the 1099-G with your tax file but, in your situation, don't enter it into the TurboTax program.

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"