You do not report a federal tax refund as income
A tax refund is not income. It is money you overpaid to the IRS during the year, and the IRS is returning it to you. The IRS does not count refunds as taxable income on your next tax return, and you should not report it on Form 1040 or any other federal tax form.
This applies whether you received your refund by direct deposit, check, or any other method. The year you receive the refund does not matter either — a refund you get in 2024 for taxes you filed in 2023 stays off your 2024 return.
State tax refunds follow the same rule in most states. However, a small number of states tax their own refunds under specific circumstances, which is covered below.
Key Takeaways
- Federal tax refunds are never reported as income on any tax return, regardless of the year you receive them.
- State tax refunds are not taxable in most states, but a handful of states tax refunds if you itemized deductions in the year you paid the tax.
- If you received a refund and later owe money to the IRS, the IRS can offset the refund against what you owe without you reporting anything.
- Refunds from insurance companies, employers, or businesses are also not reported as income unless they represent payment for work or services.
Why a refund is not income
Income is money you earn or receive. A tax refund is your own money coming back to you — it was already counted as income in the year you earned it. When you filed your 2023 tax return, you reported all your wages, interest, dividends, and other income. The IRS used that income to calculate what you owed. If you paid too much through withholding or estimated tax payments, the difference is a refund.
Reporting the refund again as income in 2024 would mean counting the same money twice. The IRS system is built to prevent this. When you file your 2024 return, the IRS already knows you received a 2023 refund — it is in their records — but they do not treat it as taxable income.
State tax refunds and the itemization rule
Most states do not tax state income tax refunds. However, Illinois, Missouri, and Vermont have rules that can make a state refund taxable under one condition: if you itemized deductions on your federal return in the year you paid the state tax.
The reason is technical. When you itemize deductions on your federal return, you can deduct state and local taxes (SALT) paid during that year, up to $10,000. If you deducted state income tax and later received a refund of that tax, the IRS considers part of the refund taxable income on your federal return — because you got a tax benefit from deducting it in the first place.
This affects only your federal return, not the state return. If you live in Illinois, Missouri, or Vermont and received a state refund after itemizing, you may need to report part of the refund as income on your federal return. The amount is usually only the portion of the refund that relates to the deduction you claimed. Your state tax software or a tax professional can walk you through this if it applies to you.
What happens if the IRS offsets your refund
Sometimes the IRS keeps your refund and applies it to money you owe them from a prior year, a current-year balance, or a federal student loan debt. This is called offset or levy. You do not report this as income either.
The IRS notifies you by mail if they offset your refund. You will receive a notice explaining what debt was paid and how much was applied. This is not a taxable event — the offset is simply a collection method, not new income. Do not report it on your tax return.
Non-tax refunds: insurance, employers, and businesses
Refunds from insurance companies, employers, or other businesses are generally not taxable income either, but the reason depends on what the refund represents.
An insurance refund — such as a homeowners or auto insurance refund — is a return of premiums you overpaid. It is not income and should not be reported. The same applies to utility refunds, security deposits returned by landlords, or overpayments you made to any service provider.
An employer refund for overpaid wages, a mistaken paycheck, or an expense reimbursement is also not income. If your employer overpaid you and you returned the money or they deducted it from a later check, you do not report this on your return — the original wages were already reported on your W-2.
A business refund — such as a refund from a vendor or a returned purchase — reduces the cost of what you bought. If you are self-employed and received a refund for a business expense, you would reduce that expense on your Schedule C, but you would not report the refund itself as income.
Refunds that are sometimes taxable
A few types of refunds can be taxable, and it is worth knowing the difference. A rebate or incentive payment from a government program or utility company for energy-efficient upgrades may be taxable if it exceeds the cost of the item. A refund of a prior-year tax deduction — like the state tax refund situation above — can be taxable on your federal return. And a refund of interest or penalties the IRS paid you is not taxable, but a refund of a tax credit you claimed and later had to repay may have tax consequences.
These situations are uncommon and usually come with a Form 1099 or a notice from the IRS or the paying organization. If you receive a form or notice about a refund, follow the instructions on that form rather than guessing.
How to handle refunds on your tax return
In most cases, you do nothing. You do not list the refund anywhere on Form 1040, Schedule 1, or any other form. If you are using tax software, there is usually no line for "refunds received" because they are not reported.
The only exception is the state tax refund situation in Illinois, Missouri, and Vermont. If that applies to you, your tax software will prompt you to report it, or a tax professional can guide you through the entry.
If you are unsure whether a specific refund should be reported, check any paperwork that came with it. A Form 1099 or letter from the payer will tell you whether it is taxable. If there is no form and you are still uncertain, a tax professional or the IRS can answer the question based on the details of your refund.
Frequently Asked Questions
Do I report a federal tax refund on my next year's tax return?
No. A federal tax refund is not income and does not go on any line of your tax return. It is your own money being returned to you, not new income you earned.
What if I got a state tax refund — do I report that?
Most states do not require you to report state refunds as income. However, if you live in Illinois, Missouri, or Vermont and itemized deductions on your federal return in the year you paid the state tax, you may need to report part of the refund on your federal return. Check your state's guidance or ask a tax professional.
If the IRS took my refund to pay a debt, do I report that?
No. An offset or levy is a collection method, not taxable income. You will receive a notice from the IRS explaining the offset, but you do not report it on your return.
Are insurance refunds or security deposit returns taxable?
No. Insurance refunds, security deposits returned by landlords, and overpayments to service providers are returns of your own money, not income. Do not report them on your tax return.
What if I received a form about my refund?
If a payer sent you a Form 1099 or other tax document about a refund, follow the instructions on that form. Most refunds do not come with a form, but when they do, the form tells you whether the refund is taxable and where to report it.