State tax refunds are taxable income only if you claimed the deduction in the year you paid the tax

A state tax refund counts as taxable income on your federal return in the year you receive it — but only if you deducted state taxes when you filed that earlier year. If you took the standard deduction instead of itemizing, your state refund is not taxable. The IRS calls this the tax benefit rule: you only owe tax on money you got a tax break for in the first place.

The timing matters. If you paid state income tax in 2023, filed your 2023 federal return in early 2024, and received a state refund in 2024, that refund is reported on your 2024 federal return — not your 2023 return. The year you receive the money is the year the IRS wants to know about it.

Key Takeaways

  • State tax refunds are taxable federal income only if you itemized deductions and claimed state income tax on your federal return in the year you paid that state tax.
  • If you used the standard deduction, your state refund is not taxable because you received no tax benefit from paying state tax in the first place.
  • You report the refund on your federal return for the year you receive it, not the year you paid the state tax.
  • The IRS Form 1040 Schedule 1 is where you report state tax refunds as "other income" if they are taxable.

How the tax benefit rule works

The tax benefit rule is straightforward: if a deduction saved you money on your federal taxes, any refund of that money is taxable. If it did not save you money, the refund is not.

In 2023, for example, the standard deduction was $13,850 for a single filer. If your total itemized deductions — including state income tax, mortgage interest, and charitable gifts — added up to less than $13,850, you would have claimed the standard deduction instead. That means state income tax was not deducted on your federal return, so a refund of that state tax is not taxable income.

If your itemized deductions totaled $18,000, you would have claimed them, including the state tax you paid. In that case, the state refund you receive is taxable because you got a federal tax benefit from paying that state tax originally.

When state refunds are not taxable

State refunds are not taxable if you took the standard deduction on your federal return for that tax year. This is the most common scenario for most filers. You can check your prior-year return to see which deduction you claimed — the standard deduction or itemized deductions.

State refunds are also not taxable if you live in a state with no income tax. Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming do not tax income, so there is no state income tax to refund. Some states tax only certain types of income (like dividends or capital gains), and refunds of those taxes follow the same rule: taxable only if you deducted them.

How to report a taxable state refund

If your state refund is taxable, you report it on your federal return for the year you receive the refund. Use Form 1040, Schedule 1 (Additional Income and Adjustments to Income). On line 1, enter the refund amount under "Other income."

Most states send a Form 1099-G (Certain Government Payments) if your refund is $10 or more. The refund amount appears in Box 2 of the form. You should receive this by January 31 of the year after you get the refund. If you do not receive a 1099-G but you know you got a refund, you can still report it — the IRS has records from the state.

If you received multiple state refunds in the same year (for example, a 2023 refund and a 2024 refund), report each one separately on Schedule 1 for the year you received it.

Partial refunds and amended returns

Sometimes you receive only part of what you overpaid. A state might apply part of your overpayment to next year's estimated tax, or you might have requested that. Only the amount actually refunded to you is taxable — not the amount credited forward.

If you filed your federal return before receiving a state refund, or if you did not know whether the refund would be taxable, you can file an amended return. Use Form 1040-X (Amended U.S. Individual Income Tax Return) for the year you received the refund. You have three years from the original due date to amend and claim a refund if you overpaid, or to pay additional tax if you owed it.

State refunds from prior years

If you are receiving a state refund for a tax year from several years ago, the same rule applies: it is taxable on your federal return for the year you receive it, not the year you paid the state tax. A 2021 state refund received in 2024 is reported on your 2024 federal return.

This can create a situation where you owe federal tax on a refund years after the original tax year. If you did not anticipate this, you may want to file an amended return for the year you received the refund to report the income and avoid an IRS notice later.

The SALT cap and state refunds

The State and Local Tax (SALT) deduction cap limits how much state and local tax you can deduct on your federal return to $10,000 per year. This cap has been in place since 2018 and is scheduled to expire after 2025, though Congress may extend it.

If you hit the SALT cap, you deducted only $10,000 of state taxes even though you paid more. A refund of the state taxes you paid above the cap is still taxable, because you paid the tax. The cap limits what you can deduct, not what you owe tax on when you get a refund. The tax benefit rule still applies to the $10,000 you did deduct.

Frequently Asked Questions

Do I have to report a state refund if it was less than $10?

You will not receive a Form 1099-G for refunds under $10, but if the refund is taxable, you should still report it on Schedule 1. The IRS does not have a dollar threshold for reporting refunds — only for issuing the 1099-G form.

What if I cannot find my prior-year tax return to check if I itemized?

You can request a transcript of your prior-year return from the IRS using Form 4506-C, or use the IRS Free Transcript tool at irs.gov. The transcript will show whether you claimed the standard deduction or itemized deductions. You can also contact the IRS at 800-829-1040.

If my state refund is not taxable, do I still need to report it?

No. If your state refund is not taxable because you claimed the standard deduction, you do not report it on your federal return. You only report it if it is taxable income.

Can I deduct a state tax refund I received?

No. A refund is not deductible. It reduces the amount of state tax you actually paid, which is what you deduct. If you deducted $12,000 in state taxes and later received a $2,000 refund, you should have deducted $10,000 — but you cannot go back and change that unless you file an amended return.

What if I owe state tax instead of getting a refund?

If you owe state tax, there is no refund to report. You may be able to deduct the state tax you pay in the year you pay it, subject to the $10,000 SALT cap, if you itemize deductions.