Is a State Refund Taxable?

by Ann Deiterich ; Updated July 27, 2017

Receiving a tax refund can be a relief to taxpayers. But before you spend any refund you get from your state treasury for your state tax bill, find out whether the Internal Revenue Service (IRS) will want you to pay tax on it.

Tax Free

According to the IRS, your state tax refund is not taxable if you declined to itemize your deductions on Schedule A for the same year you received the refund. If you itemized but opted to use the state and local general sales taxes instead of state and local income tax, your state refund is also exempt from federal income tax.

Form 1099-G

If you received a refund or credit to apply to a future tax bill for state or local taxes, you may receive a 1099-G form for “certain government payments.”

Taxable

If you itemized deductions and subsequently received a state or local tax refund, that refund may be taxable. If so, you’ll enter the taxable amount on Form 1040, Line 10 as income.

Worksheet

The IRS provides a special worksheet to determine if any of your state or local refund is taxable. For tax year 2011, this worksheet can be found on page 21 of the 1040 instruction booklet (See Resources).

Publication 525

You may be required to review Publication 525 (see Resources) to determine the taxability of your state refund if certain conditions apply. For example, refer to Publication 525 if your refund is for a tax year other than the one previous to receiving it or if the refund is for a tax other than income tax.

About the Author

Ann Deiterich has been a writer since 1984 in business-to-business communications, specializing in TQM, business/financial topics, office management and production efficiency. As an environmental proponent, nature and science are her areas of interest. Deiterich holds a Bachelor of Arts in English from Albright college and has three expert rating certifications including Grammar, Words/Phrases and Advertising Skills.

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