State and Local Refunds

Taxpayers who receive a refund of state or local taxes may receive Form 1099-G, Certain Government Payments, with their refund amount shown in box 2. Not everyone must include the refund in their taxable income.

• Taxpayers who claimed the standard deduction on the tax return for the year they received a refund of state or local income taxes are not required to include the refund in their taxable income
• Taxpayers who itemized deductions and received a state or local refund may have to include all, part, or none of the refund in their federal taxable income

Only those taxpayers who itemized deductions and received a federal income tax benefit for deducting their state or local income taxes have to include their state/local tax refunds in income. If they itemized deductions and deducted the state sales tax instead of the state income tax withheld, none of the refund is taxable.