State tax refunds are not counted as income on your federal return, but they may be taxable income on your next year's state return if you itemized deductions the previous year
A state tax refund you receive is generally not reported as income on your federal tax return. The IRS treats it as a return of money you overpaid, not as new income earned. However, there is one exception: if you claimed a deduction for state and local taxes (SALT) on your previous year's federal return and you itemized deductions rather than taking the standard deduction, then the refund may be taxable on your federal return in the year you receive it.
The reason for this exception is the tax benefit rule. If you deducted state taxes you paid in year one, and then received a refund of some of those taxes in year two, the IRS considers that refund taxable income in year two because you already received a tax benefit from deducting it. You are not taxed twice on the same money — you simply report the refund as income in the year it arrives.
State tax refunds may also affect your state income tax return. Some states tax refunds from previous years, while others do not. This depends entirely on your state's tax law and whether you itemized deductions on your state return.
Key Takeaways
- State tax refunds are not reported as federal income unless you itemized deductions on your previous year's federal return.
- If you itemized deductions and claimed SALT (state and local taxes), your refund is taxable federal income in the year you receive it.
- If you took the standard deduction, your state refund is not taxable on your federal return.
- State tax refunds may be taxable on your state return depending on your state's rules and whether you itemized on your state return.
- The IRS will send you a Form 1099-G if your refund is large enough to report, which tells you what to include on your return.
When the tax benefit rule applies to your refund
The tax benefit rule is the key to understanding whether your state refund becomes federal income. It applies only if two things happened in the year you paid the state taxes: you itemized deductions on your federal return, and you deducted state and local taxes (SALT) as part of those itemized deductions.
If you took the standard deduction instead of itemizing, you did not deduct any state taxes, so there is no tax benefit to recover. Your refund is not taxable income on your federal return. This is true even if your state refund is large.
The amount of the refund that is taxable is only the portion that actually gave you a tax benefit. If you paid $8,000 in state taxes but your SALT deduction was capped at $10,000 (the federal limit), and you received a $2,000 refund, the full $2,000 is taxable because all of it was deducted. If you received a $12,000 refund but only deducted $10,000 in state taxes, only $10,000 of the refund is taxable.
How to report a state tax refund on your federal return
If your state refund is taxable under the tax benefit rule, you report it on Form 1040, Schedule 1, line 1 (Other Income). You do not need to file a separate form — you simply enter the amount on the line marked for refunds of state and local income taxes.
The IRS will send you a Form 1099-G if your refund meets the reporting threshold. For most states, this threshold is $10 or more, though some states have higher thresholds. The 1099-G will show the refund amount in Box 2 (State income tax refund). You should receive it by January 31 of the year following the refund.
If you receive a 1099-G but the refund is not taxable because you took the standard deduction, you still do not report it as income. You can attach a statement to your return explaining why, though the IRS does not require this if you simply leave it off your return.
State-level taxation of refunds varies by location
Whether your state taxes your refund depends on your state's tax law. Some states follow the same tax benefit rule as the federal government and tax refunds only if you itemized deductions on your state return. Other states do not tax refunds at all, regardless of whether you itemized.
A few states have their own Form 1099-G reporting requirements for refunds. If your state requires reporting, you will receive a state-specific form or a combined federal-state 1099-G. Check your state's tax authority website or the instructions for your state return to learn the rule for your location.
If you moved to a different state after paying taxes to your previous state, the refund may be taxable in the state that issued it, not in your current state. The state that refunded the money is the one that determines whether to tax it.
What to do if you did not receive a 1099-G but think you should have
If you received a state tax refund and did not get a 1099-G, check whether the refund amount met your state's reporting threshold. Many states do not issue a 1099-G for refunds under $10. If the refund was below the threshold, you are not required to report it, though you may still owe tax on it if the tax benefit rule applies.
If the refund was large enough to require reporting and you did not receive a 1099-G within a few weeks of receiving the refund, contact your state tax authority directly. Provide your Social Security number and the refund amount. The state can reissue the form or confirm that one was sent.
If you received a 1099-G but believe the amount is wrong, contact the state tax authority that issued it. Do not file your return until the discrepancy is resolved, because the IRS will have a copy of the 1099-G and will expect your return to match it.
Refunds from amended returns and prior-year claims
If you received a refund because you filed an amended state return or claimed a credit you missed in a prior year, the same tax benefit rule applies. The refund is taxable on your federal return only if you itemized deductions in the year you originally paid the state taxes being refunded.
For example, if you paid state taxes in 2022, itemized deductions in 2022, and then received a refund in 2024 because you filed an amended 2022 return, the refund is taxable on your 2024 federal return. The year the refund arrives is what matters for federal reporting purposes.
Frequently Asked Questions
Do I have to report a state tax refund if I took the standard deduction?
No. If you took the standard deduction in the year you paid the state taxes, you did not deduct those taxes, so the refund is not taxable on your federal return. You do not report it as income even if you receive a 1099-G.
What if I itemized deductions but did not deduct state taxes?
If you itemized but deducted something else instead (like mortgage interest or charitable donations), your state refund is not taxable. The tax benefit rule only applies to refunds of taxes you actually deducted.
Can a state tax refund affect my federal tax bracket or credits?
Yes. If your refund is taxable, it increases your total income for the year, which can affect your tax bracket, your may be able to access for certain credits, or the amount of credits you receive. This is especially true for income-based credits like the Earned Income Tax Credit.
If my state does not tax refunds, do I still report it to the IRS?
Yes. Federal taxation and state taxation are separate. Even if your state does not tax the refund, you must report it on your federal return if the tax benefit rule applies, because the IRS has its own rules about what counts as income.
What if I received a refund but never received a 1099-G?
Check whether the refund amount was below your state's reporting threshold, usually $10. If it was above the threshold, contact your state tax authority to request a copy. If you owe tax on the refund, you should report it even without the form, because the IRS may have a copy on file.