How to handle Form 1099-G with prior year's state tax refund? Question about 2021 Form 1099-G showing 2020 refund

Yes, this is a common source of confusion! The 1099-G is reporting your state tax refund from the previous year because that refund might be taxable income on your current year's federal return. Here's why: If you itemized deductions on your 2020 federal return and deducted state income taxes, then the refund you received in 2021 (for tax year 2020) could be considered income for 2021. This is because you already received a tax benefit by deducting those state taxes. When you got some of that money back as a refund, the IRS considers it income. However, you may not need to report the entire amount as income. It depends on whether itemizing actually gave you a tax benefit over the standard deduction, and by how much. If itemizing only benefited you by $2000, but your refund was $4000, you'd only include $2000 as taxable income.

Hey guys, I went through this exact same confusion last year! I spent hours trying to figure out how to handle my state tax refund on my 1099-G and finally found this amazing tool at https://taxr.ai that literally walked me through the whole process. You upload your 1099-G and it analyzes how much of your state refund is actually taxable based on your previous year's deductions. The best part was it explained everything in plain English and showed me exactly how much I needed to report as income - turned out I only needed to report about half of my refund as taxable! The site clearly explained that if you took the standard deduction in the previous year, your state refund isn't taxable at all. Saved me a bunch of money and stress.

Just wanted to update everyone - I tried out https://taxr.ai after seeing it mentioned here and it was actually super helpful! I uploaded my 1099-G and my previous year's tax info, and it immediately showed me that only $1,850 of my $4,200 state refund was actually taxable. The explanation made perfect sense - I only benefited from a portion of my state tax deduction last year since I was right on the edge between standard and itemized deductions. The tool generated a detailed worksheet showing exactly how they calculated the taxable portion, which I can keep with my tax records. Definitely cleared up my confusion about Form 1099-G and saved me from overpaying on my taxes this year!

For anyone still struggling with this 1099-G issue - if you need to actually talk to someone at the IRS about your specific situation, I highly recommend https://claimyr.com. I tried calling the IRS directly about my state refund question and sat on hold for over an hour before giving up. Then I found Claimyr which gets you to the front of the IRS phone queue. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c I was connected to an IRS agent in about 20 minutes (instead of hours) and they walked me through exactly how to report my 1099-G correctly. The agent confirmed that I only needed to report part of my state refund as taxable income and explained how to calculate the correct amount. Saved me hours of frustration and potentially an incorrect tax filing.

I need to eat my words and update everyone. After dismissing Claimyr as a probable scam, I decided to try it myself since I was desperate to ask about my 1099-G situation. It actually worked exactly as advertised! I submitted my request around 9am, got a text about 45 minutes later saying I was next in line, and then my phone rang with an IRS agent on the line. The agent confirmed that I only needed to report a portion of my state tax refund since not all of it provided a tax benefit last year. She walked me through the worksheet in Publication 525 to calculate the exact amount. I would have been on hold for hours trying to get this information myself. Definitely worth it for anyone with complicated tax questions about their 1099-G or other tax forms.

Just wanted to add another perspective on the 1099-G issue. If you use TurboTax, there's a specific section when you enter the 1099-G info that will calculate how much of your state refund is taxable. It asks if you itemized last year and then does some calculations behind the scenes. Also, if you took the standard deduction last year (2020), then NONE of your state refund is taxable for 2021! The form is still issued, but you don't have to report it as income. This is because you didn't get any tax benefit from deducting state taxes.

Omg this exact thing happened to me last year! I freaked out because I thought I had to pay taxes on the entire refund amount. My accountant explained that you only have to report it if you itemized, AND only the amount that actually benefited you. Pro tip: if you change your W-4 to have the right amount withheld by your employer, you can avoid getting large refunds in the first place. Then you don't have to deal with this 1099-G nonsense the following year!