This article will help you understand how the State and Local Refunds Taxable Worksheet for Form 1040 is calculated in Intuit ProConnect.
To find out how the taxable portion of state and local refunds is calculated:
- Go to the Input Return tab.
- From the left of the screen, select Income and choose Tax Refund, Unempl. Comp. (1099-G).
- Click the blue State Refund Wksht link in the top right of the screen.
- Locate the State and Local Tax Refund Worksheet section.
- Mark the checkbox labeled Itemized in 20YY.
- YY represents the two-digit prior tax year.
- If this box has not been checked, state income taxes gave no tax benefit in the prior year; therefore the entire state tax refund is nontaxable.
- Additional entries on this screen are required to calculate the taxable portion of the state tax refund. See calculation below.
The worksheet is calculated as follows:
For line 1 and line 2, the input fields are found on the Tax Refund, Unempl. Comp. (1099-G) screen. For the rest of the lines, go to the Tax Refund, Unempl. Comp. (1099-G) screen and click the blue State Refund Wksht link at the top right corner of the screen.
|Line||Instruction||Input field name or [Calculation]|
|1||State and local income tax refunds (prior year)||Income tax refunds, credits or offsets (2)|
|2||Refunds attributable to post 12/31/20XX payments per IRS Pub. 525||Refunds attributable to post-20YY ES/extension payments|
|3||Net state and local income tax refunds||[Add lines 1 and 2]|
|4||State/local taxes paid from prior year Sch. A, line 5e||Totals your entries for Schedule A, line 5a, 5b, and 5c, with the SALT limit applied|
|5||Prior year allowable sales tax deduction||Allowable general sales tax deduction (Schedule A, line 5a)|
|6||Excess of income taxes deducted over sales taxes||State and local income taxes (Schedule A, line 5a) less Allowable general sales tax deduction (Schedule A, line 5a)|
|7||Enter the smaller of line 3 or line 6||[Smaller of line 3 or line 6]|
|8||Itemized deductions from prior year Sch. A, line 17||Total itemized deductions (Schedule A, line 17)|
|9||Prior year recomputed itemized deductions, if state and local taxes were limited|
|10||Prior year base standard deduction||Base standard deduction|
|11||Prior year add'l standard deduction for age/blindness||Number of age/blind exemptions|
|12||Prior year total standard deduction (add lines 10 and 11)||[Add lines 10 and 11]|
|13||Enter the larger of line 9 or line 13||[Larger of line 9 or line 13]|
|14||Subtract line 13 from line 8 (not less than 0)||[Line 8 minus line 13]|
|15||Enter the smaller of line 7 or line 14||[Smaller of line 7 or line 14]|
|16||Negative taxable income (prior year)|
|17||Refund with no tax benefit due to AMT, or nonrefundable credits, 0% capital gain rate, SALT limit||Refund with no tax benefit due to AMT, nonrefundable credits, or 0% capital gain or qualified dividend rate|
|18||State and local refunds taxable this year (add lines 15, 16, and 17, but not less than 0)||[Add lines 15, 16, and 17]|
You can't force the State and Local Tax Refund Worksheet to generate if the state refund is nontaxable.
Refer to page 85 of the IRS instructions for Form 1040 for more information.