General Rules

Purpose of Form 1099-G - Certain Government Payments:

To notify taxpayers of their 2013 Massachusetts income tax overpayment received in 2014. This overpayment amount may be considered income required to be reported on the 2014 Federal 1040, line 10, Taxable Refund, if the taxpayer itemized deductions on Schedule A in 2013 and the amount claimed for state income taxes was the withholding amount and/or total estimated payment amounts made in 2013.

Impact on 2014 Massachusetts Filing:
No income required to be reported.

Impact on 2014 Federal Filing:
Generally, when taxpayers itemize on their Federal Schedule A, they will claim all of their withholding and estimated payments as a deduction since these are amounts actually paid in 2013. But more often than not, taxpayers' liabilities will either be more than or less than amounts withheld and/or estimated.

The reason why taxpayers may be required to report a prior year's refund as income in the subsequent year is to adjust for the overstatement of the prior year tax deduction claimed.

Example:

2013 Massachusetts withholding= $1,500
2013 Massachusetts tax= $1,200
2013 Massachusetts overpayment received in 2013= $300

Where Taxpayer claimed Withholding on Federal Schedule A:
For 2013, the taxpayer claimed the entire withholding amount of $1,500 on Schedule A and received a refund of $300; in 2014, however the taxpayer must adjust the deductible state income tax deduction to reflect actual Massachusetts tax of $1,200. The taxpayer will receive a Form 1099-G for the $300 overpayment, and it is this amount that must be reported on the 2014 Federal 1040, Line 10.

Where Taxpayer claimed Actual Tax on Federal Schedule A:
Some taxpayers will choose an alternate method of reporting the state income tax deduction and will report the actual computed tax liability, in our example, the $1,200. The taxpayer would not be required to report the $300 refund as income on the 2014 Federal 1040..

Computation of Massachusetts Refund:
The 2013 Massachusetts overpayment amount reported on the 2014 1099-G includes amounts that were designated to the following items:

  • All Voluntary Contribution Amounts Reported On Line 29;
  • 2013 Overpayment Applied To 2014 Estimated Tax;
  • Internal and External Offsets.

The Massachusetts refund amount, if any, is the overpayment amount net the above amounts.

Proper Reporting Of Voluntary Contributions:
The Massachusetts Form 1 computation of tax and refund sequence is a bit confusing because the voluntary contributions are added to the tax before applying credits and payments when, in reality, the voluntary contributions reduce the amount of refund issued to taxpayers but do not reduce the amount of the actual overpayment. i.e., same example as above but the taxpayer makes $150 voluntary contribution which reduces the amount of overpayment to arrive at the net refund of $150. In this case, the taxpayer will still receive a 1099-G for the $300 which should be reported in full on the 2014 Federal 1040, but the taxpayer is also entitled to a 2014 federal charitable contribution deduction of $150.