Question
I received a Form 1099-G reporting the state tax refund I received during the year. Do I have to include this as income on my federal tax return?
Answer

Whether or not your state income tax refund is taxable on your federal income tax return depends on whether you took an itemized deduction (Schedule A (Form 1040)) for the tax that was later refunded.

  • Don't report any of the refund as income if you didn’t itemize your deductions on your federal tax return for the tax year that generated the refund.
  • If you took an itemized deduction in an earlier year for taxes paid that were later refunded, you may have to include all or part of the refund as income on your tax return. Use Worksheet 2, Recoveries of Itemized Deductions in Publication 525, Taxable and Nontaxable Income, to determine the taxable amount of your state or local refunds to report on line 10 of Schedule 1 (Form 1040), Additional Income and Adjustments to Income.