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Sorry for the terse title, here is a more fleshed out explanation:

When I filed my 2011 taxes last year, I received a refund from my state of residence (Arkansas). Later last year I had to amend my 2011 tax filing due to a business which changed ownership (not my business, but I owned stock). This amendment required me to pay back a large portion of the return which I received.

Now I'm filing my 2012 taxes, and since I have itemized my deductions, I am expected to declare the refund from last year as income. To facilitate this, the state of Arkansas has furnished me with a 1099-G, which shows my initial refund amount. It seems weird to me that I have to declare the full amount, even though later I had to repay a chunk of it. Is there any way for me to get "credit" for the part which I paid back?

I have called the Arkansas Dept. of Fin. and Adm., but they say that there is no way that they can adjust my 1099-G, even though I paid some of it back.

Thanks!

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    Can you not deduct the 2011 state taxes paid in 2012 on your 2012 return? I pay my property taxes in arrears (my 2011 property tax was paid in 2012), and I deduct that in the tax year it was actually paid.
    – Rick Goldstein
    Feb 6, 2013 at 22:59

2 Answers 2

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If you get 1099-G for state tax refund, you need to declare it as income only if you took deduction on state taxes in the prior year. I.e.: if you took standard deductions - you don't need to declare the refund as income.

If you did itemize, you have to declare the refund as income, and deduct the taxes paid last year on your schedule A. If this year you're not itemizing - you lost the tax benefit.

If it was not clear from my answer - the taxes paid and the refund received are unrelated. The fact that you paid tax and received refund in the same year doesn't make them in any way related, even if both refer to the same taxable year.

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  • I think the OP understands that, they are just trying to determine how to deal with the amended refund amount.
    – Craig W
    Feb 7, 2013 at 1:09
  • @CraigW There's no amended refund. The OP got a refund, and paid tax, they don't offset each other, these are two separate transactions.
    – littleadv
    Feb 7, 2013 at 1:13
  • I think the OP raises a point that, suppose he got the state refund last year due to a mistake in the tax return, that even if he fixes it very quickly with an amended return, that it is not treated the same as if he did the correct return in the first place. So the mistake, even amended, may cause an irreversible loss of money.
    – user102008
    Feb 7, 2013 at 1:14
  • @user102008 wasn't that what I wrote in my answer?
    – littleadv
    Feb 7, 2013 at 1:15
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http://www.irs.gov/taxtopics/tc503.html says you can deduct "Any prior year's state or local income tax you paid during the year." So I would say as long as you have good records, you can deduct the excess refund you had to pay back in the year in which you paid it. Whether or not your return was amended shouldn't affect whether or not it is deductible.

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    unless he's taking the standard deduction for federal taxes this year. in that case he cannot deduct it
    – user102008
    Feb 7, 2013 at 1:19
  • @user102008 Correct.
    – Craig W
    Feb 7, 2013 at 1:20
  • -1 for not mentioning the itemization.
    – littleadv
    Feb 7, 2013 at 1:21

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