Your New York state tax refund is not taxable on your federal return, but it may be taxable on your next New York state return if you claimed the deduction in the year you paid the tax.
The rule is straightforward: money the state gives back to you is taxable only if you got a tax benefit from paying it in the first place. If you deducted New York state income tax on your federal return in the year you paid it, the refund counts as income on your federal return the following year. If you took the standard deduction instead, the refund is not taxable federally.
On your New York state return, the same logic applies. If you deducted New York state income tax on your state return (which you would have if you itemized), the refund is taxable state income. Most people take the standard deduction on both returns, which means the refund is not taxable at all.
Key Takeaways
- A New York state income tax refund is taxable on your federal return only if you deducted New York state income tax on your federal return in the year you paid the tax.
- If you took the standard deduction on your federal return, your New York refund is not taxable federally.
- The same rule applies to your New York state return: the refund is taxable only if you deducted state income tax when you filed.
- You will receive a Form 1099-G from New York if your refund is $10 or more, which will show the amount you must report.
- The IRS and New York Department of Taxation and Finance both track refunds to prevent underreporting.
When your refund is taxable on your federal return
Your New York state income tax refund is taxable on your federal return if you claimed New York state income tax as an itemized deduction on your federal return for the year you paid the tax. This is called the tax benefit rule. You received a tax benefit from deducting the payment, so the refund is income in the year you receive it.
Most people do not itemize. If you took the standard deduction on your federal return, you did not deduct New York state income tax, so the refund is not taxable federally. The standard deduction is higher than itemized deductions for most households, which is why the IRS allows it as a simpler alternative.
The year that matters is the year you paid the tax, not the year you receive the refund. If you paid New York tax in 2023 and received the refund in 2024, you look back to your 2023 federal return to see whether you itemized and deducted that tax.
When your refund is taxable on your New York state return
New York applies the same tax benefit rule to its own returns. If you deducted New York state income tax on your New York state return in the year you paid it, the refund is taxable on your next New York return. If you took the standard deduction on your New York return, the refund is not taxable.
Most New York filers take the standard deduction, which means most refunds are not taxable on the state return. However, if you itemized on your New York return because your deductions exceeded the standard deduction amount, you would have deducted the state income tax you paid, and the refund would be taxable.
How the IRS and New York know about your refund
New York sends you a Form 1099-G if your refund is $10 or more. This form shows the amount of the refund and goes to both you and the IRS. The IRS matches the 1099-G to your tax return to make sure you reported the refund if it was taxable.
You will receive the 1099-G by January 31 of the year following the refund. If you do not receive one and your refund was $10 or more, contact the New York Department of Taxation and Finance to request a copy. If you received a refund under $10, you will not receive a 1099-G, but you are still responsible for reporting it if it is taxable.
New York and the IRS cross-check refund data to catch underreporting. If you received a 1099-G and did not report the refund on your federal return, the IRS will likely send you a notice. The same applies to your New York state return.
How to determine if you itemized in the year you paid the tax
Look at your tax return from the year you paid the New York state income tax. On your federal return, check whether you itemized deductions or took the standard deduction. This is shown on Schedule A (Form 1040) if you itemized, or on the main Form 1040 if you took the standard deduction.
If you itemized, you deducted New York state income tax (or sales tax, but not both). The amount appears on Schedule A as a state and local income tax deduction. If you took the standard deduction, no line shows state tax deductions, and the refund is not taxable federally.
If you are unsure, you can request a copy of your prior-year return from the IRS by filing Form 4506-C. The IRS charges a small fee and takes about 5 to 10 business days to send it. Alternatively, if you filed electronically, you may have a copy in your email or tax software account.
Reporting the refund on your tax return
If your refund is taxable, report it on your federal return on Form 1040, line 1 (other income). Write "Tax refund" next to the amount. Attach the 1099-G to your return if you are filing on paper, or upload it if you are filing electronically.
On your New York state return, report the refund on Form IT-201, line 9 (other income). Again, write "Tax refund" next to the amount. If you are filing electronically through New York's system, the software will prompt you to enter the refund amount.
If the refund is not taxable because you took the standard deduction, do not report it. You do not need to file anything extra or explain why you are not reporting it—simply leave it off your return.
What to do if you received a notice about your refund
If the IRS or New York sent you a notice saying you did not report a refund, respond promptly. The notice will explain what the agency believes you owe. If you took the standard deduction and the refund is not taxable, send a copy of your prior-year return showing the standard deduction, along with a letter explaining that you did not itemize.
If you did itemize and the refund is taxable, you can file an amended return (Form 1040-X for federal, Form IT-201-X for New York) to report the refund and pay any tax owed. You may also owe interest and penalties, depending on how late the amended return is. Filing the amended return voluntarily before the IRS or New York contacts you again can reduce penalties.
If you disagree with the notice, you have the right to dispute it. The notice will include instructions for requesting a hearing or submitting a written response. Keep copies of all documents you send.
Frequently Asked Questions
Do I have to report a refund under $10?
You will not receive a 1099-G for a refund under $10, but you are still responsible for reporting it if it is taxable. The threshold for the 1099-G is $10, not the threshold for reporting. If you itemized and received a small refund, report it on your return.
What if I took the standard deduction one year and itemized the next?
Each year stands alone. If you took the standard deduction in 2023 when you paid the tax, the 2024 refund is not taxable on your 2024 federal return, even if you itemized on your 2024 return. The year you paid the tax is what matters.
Can I deduct the refund as a loss?
No. A tax refund is not a deductible loss. It is either taxable income (if you itemized) or not taxable (if you took the standard deduction). You cannot claim it both ways.
What if New York made an error and sent me a refund I did not deserve?
Contact the New York Department of Taxation and Finance immediately. If you received money in error, you are still required to report it as income on your tax return. New York may ask you to return the money, and if you do not, you could face penalties. Report the refund and let New York handle the correction on their end.
Does a refund of estimated tax payments count as taxable income?
Yes, the same rule applies. If you overpaid estimated taxes and New York refunded the overpayment, the refund is taxable if you deducted the estimated tax payments when you filed. Most people do not deduct estimated payments separately, so the refund is usually not taxable.