I read the guidance IRS put out regarding the rebates received in many states.  Since I am in IL, I noticed the footnote at the bottom regarding IL.  If I am understanding this correctly, IRS is considering the personal rebate ($50 per taxpayer, $100 per dependent) as a general welfare payment and not taxable.  However, I am understanding the real estate rebate is to be considered a refund of property tax paid (not income tax even though the amount generally equaled the real estate tax credit given on the income tax return as originally filed for most taxpayers).

If my interpretation is correct, then a couple things are happening.  First, the 1099-G forms issued by the state of Illinois which include two lines, one for the original tax refund for 2021 and an additional line for the total rebate (both personal and real estate), is incorrect and should only reflect the original tax refund.  Second, if the taxpayer did not itemize in 2021, then this entire exercise is moot as nothing will be taxable (and IL would not have issued any 1099-G).

However, if the taxpayer itemized, a 1099-G was issued and needs to be dealt with (specifically the first line showing the income tax refund-I am assuming they will issue corrected 1099-G forms).  And this is where the complication comes into play.  The real estate rebate, now designated as a property tax refund, is a second type of itemized deduction recovery.  I do not believe the state income tax refund worksheet within the program can handle this situation and needs to be disabled.  However, by doing so the entire state tax refund shows up as taxable.  That may be the true in some cases but if total taxes paid exceeded $10000, it will not be true.  To compute the correct amounts, I believe one has to use Publication 525, specifically worksheets 2a first, and then worksheet 2 second, to determine the amount of the state income tax refund, and the amount of the property tax refund, which are taxable.

Once those amounts are known, and the state income tax refund worksheet is disabled, then I believe the state income tax refund which is taxable can be entered on the carryover worksheet (and will find its way to Form 1040, Schedule 1, line 1).  The amount of the property tax refund which is taxable can be entered on line 7 of the other income statement, which reports it properly on Schedule 1, line 8z.

If I am correct so far (a BIG if), then my concern is there is nothing attached to the return, like the state income tax refund worksheet, which reconciles the 1099G (assuming IL issues corrected 1099G forms) to the amount shown on the return.  I am thinking about creating a pdf containing both worksheet 2a and worksheet 2 and attaching it to the return.

Am I missing something within the program that can simplify this?  Am I way off base? Or does this seem correct and reasonable?