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1099Gs (state income tax refunds) don't make sense

I paid very substantial income tax in 2007, almost nothing in 2008, and don't expect to pay anything in 2009. But my 1099Gs don't make sense and I need help.

1) I paid $5,000 in estimated NYS tax in 2008 for 2009. I only owed $42 in tax, so I got a $5,458 refund representing the estimated taxes and a refundable tax credit. My 1099G for 2009 is for $5,000. What do I do about the other $458? Ignore it, or report the entire $5,458 despite the 1099G? Since I didn't pay any income tax in 2008 (just some self employment tax) I didn't get any deduction for the estimated tax payment. Does that mean I don't have to pay any tax on it (in the unlikely event my income is high enough to owe taxes) on the refund in 2009?

2) My accountant did a horrible job on my 2007 taxes (overstating several incomes) and I hired someone else to fix it and file an amended return. (I did my own 2008 returns as they were trivial.) The amended NYS return called for a $1,035 NY refund. I actually got a check for $1,074.51; I presume the additional $39.51 is interest, though it doesn't say so. The 1099G I got for the refund is $635. I don't have a clue why it is $400 too small; nothing in the amended return seems to be related to the discrepancy. Do I call the refund $1,035 or $635? Do I declare the $39.51 interest on both the Federal and State returns, even though I have no 1099INT for it?

Reply to
Toller
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Is the refundable credit taxable income for Federal Income Tax purposes? If so, include it.

Yes. There's a worksheet to see how much (if any) of it provided you with a benefit. However, if any of the refund represents interest, that part is taxable.

They should have sent you a letter saying why the amount isn't what you filed for (at least, the IRS does).

If it's interest, it's taxable whether or not you got a 1099.

When was the tax paid, that generated that refund? If the state tax was paid in 2008 (when you had little income), the deduction probably didn't matter so the refund isn't taxable. If it was paid in 2007, the deduction probably did matter so the refund is taxable (and you shifted income from a high-rate year to a low-rate one).

Seth

Reply to
Seth

My taxable income in 2008 was a big negative, much in excess of the estimated tax payment deduction. As such the deduction saved me no money, which I confirmed by running it through taxcut without the deduction.

I have plugged numbers into Pub 529's Worksheet 2. Recoveries of Itemized Deductions. It says to use the taxable income from 1040 line 29, and if that number is zero or more, you have to pay tax on the refund. BUT, 1040 line 29 can never be anything BUT zero or more, because it says to use zero if negative.

BUT in the instructions for the worksheet, it says "If taxable income is a negative amount, enter that amount in brackets. Do not enter zero unless your taxable income is exactly zero." Does that mean that I enter my actual negative taxable income, instead of changing it to zero as required by 1040 line 29? That makes sense, but is certainly ambiguous.

Your help is much appreciated.

Reply to
Toller

Form 1040 line 29 is not labeled Taxable Income.

Hint: It' s on page 2 of form 1040.

In any event from what you tell us, you did not have any tax benefit from the state/local income tax so just ignore the 1099G.

Reply to
Arthur Kamlet

I don't know why I typed "line 29". It should be "line 43". I agree that I shouldn't have to pay taxes on the refund, but the worksheet says I must. I am trying to sort that out.

Reply to
Toller

It can't be easy, but you've managed to both over and under read things. (We're talking about Worksheet 2 in Pub 525, BTW, not Pub

529.) While the worksheet refers you to the taxable income line of the 1040, which does tell you to enter zero on the 1040 if taxable income is negative, the worksheet footnote also tells you to use that negative number on the worksheet. So do it, finish the worksheet, and it will confirm that you have no taxable income from the refund.

Phil Marti VITA Volunteer

Reply to
Phil Marti

Yeh, 525. Getting senile I guess. So the proper way is to ignore the directions for line 10 and use the negative number for the worksheet. Doing that tells me it is not taxable. Thanks.

Reply to
Toller

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