What this line means
The taxable portion of any state or local income tax refund, credit, or offset you received during the year. This amount is only taxable if you itemized deductions on your federal return the prior year and deducted state or local income taxes. If you took the standard deduction last year, your state refund is not taxable and this line is zero.
Does this apply to you?
- You itemized deductions on last year’s federal return and deducted state or local income taxes
- You received a state or local income tax refund reported on Form 1099-G
- You received a credit or offset against state or local income taxes you owed
- You claimed the state and local tax (SALT) deduction on Schedule A last year
Easy to overlook
Standard deduction filers do not owe tax on state refunds If you took the standard deduction last year instead of itemizing, your state income tax refund is not taxable income this year. Many filers see the 1099-G from their state and assume the entire refund must be reported. The tax benefit rule applies — you only owe tax on a refund if you received a tax benefit from the original deduction. No itemized deduction, no tax benefit, no taxable refund. 1 General filing pattern — standard deduction filers reporting refunds unnecessarily
The SALT cap reduces or eliminates the taxable amount Even if you itemized, the $10,000 state and local tax deduction cap (SALT cap) means you did not receive the full tax benefit of your state tax payments if your total exceeded $10,000. If your state and local taxes exceeded $10,000 and you could only deduct $10,000, part of your refund is not taxable because it relates to the capped portion. Use the State and Local Tax Refund Worksheet in the instructions to calculate the correct taxable amount. 2 IRS Publication 525 — Taxable and Nontaxable Income
Watch out for this
Reporting the full Form 1099-G amount without running the State and Local Tax Refund Worksheet. The 1099-G shows the total refund you received, but the taxable amount is often less — especially if you were subject to the SALT cap or if you used the sales tax deduction instead of the income tax deduction. Reporting the full 1099-G amount overstates your income.
Footnotes
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IRS Publication 525, Taxable and Nontaxable Income, State Tax Refunds. https://www.irs.gov/pub/irs-pdf/p525.pdf ↩
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IRS Schedule 1 (Form 1040) Instructions, Line 1. https://www.irs.gov/pub/irs-pdf/i1040s1.pdf ↩