Michigan 1099G for State Income Tax Refund - Why does it include Use Tax paid?

Forum|Forum|2 years ago
January 28, 2024
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In Michigan, if you have an income tax refund for the previous calendar year, you receive a 1099G with an amount in Box 2 that is the actual income tax refund receive plus any Use Tax that was paid on the Michigan 1040 of that calendar year. I see most searches on 1099G show up for unemployment income, which is NOT the scenario for my question.

My question is why is the State Use Tax paid included as a tax refund that I have to report on my Federal 1040 Schedule 1 as potential taxable income? Every year my 1099G Box 2 is higher than my actual refund received, so I did a deeper dive and see that they add Use Tax paid to come up with this value. This year my 2022 1099G seemed to have been lost in the mail.

It seems to me like taxing it twice - first is state sales/use tax and then taxed again as if it were personal income.

Not A Product Question

SteamTrain

Employee

It's the same thing for any state's refund.

The Use tax is added back into the value, because it is a sales tax and not an income tax.

As a "Sales Tax" paid to the state in 2023...it might be used for 2023 as part of a person's itemized deductions IF..IF..their total sales taxes exceed their state income taxes...but that's usually not the case unless they bought tons of stuff.

____________*Answers are correct to the best of my knowledge when posted, but should not be considered to be legal or official tax advice.*

metroplexAuthor

so it is added because it MIGHT be used for the Itemized deductions? Is that why it is part of the Federal Schedule 1 Line 1 “state and local income tax refund worksheet” calculation?

this makes more sense!

SteamTrain

Employee

In my opinion....no...not really that reason.

the reason is that only state "Income taxes" can be used for itemized deductions.

...and the Use tax is not an income tax...it is a generic sales tax...something that you pay at Walmart...Target...Amazon...etc.

So the fact that you paid some sales taxes...out of your full state refund....is immaterial to what the total state refund was (Before sales tax was assessed).

____________*Answers are correct to the best of my knowledge when posted, but should not be considered to be legal or official tax advice.*