If you received a refund of state or local income taxes from a prior-year return, you may get Form 1099-G, Certain Government Payments. The refund amount is usually reported in Box 2.
Whether that refund is taxable on your federal tax return depends on how you claimed deductions in the year you paid the tax. In many cases, some or all of the refund is not taxable.
Is My State or Local Tax Refund Taxable?
Your state or local tax refund is not taxable on your federal return if either of the following applied in the year you paid the tax:
- You claimed the standard deduction instead of itemizing deductions, or
- You itemized deductions but chose to deduct general sales taxes instead of state and local income taxes on Schedule A
Your refund may be taxable if:
- You itemized deductions on Schedule A, and
- You claimed a deduction for state or local income taxes
This rule exists because you may have received a federal tax benefit when you deducted those taxes. If you later receive part of that money back as a refund, the IRS may require you to report some of it as income.
How the Taxable Amount Is Determined
Even if your refund is potentially taxable, that does not mean the entire amount will be taxed.
The IRS uses a worksheet to calculate how much of the refund, if any, must be included in income. When you enter your Form 1099-G information, the program automatically completes the required calculations and determines the taxable amount for you.
In some cases:
- The entire refund may be taxable.
- Only part of the refund may be taxable.
- None of the refund may be taxable.
Married Filing Jointly or Multiple Forms 1099-G
You may receive more than one Form 1099-G, especially if you lived in different states or if spouses received separate refunds.
The program provides one entry area for state and local tax refunds. Enter the appropriate total amount based on your filing situation.
General Rule
If you're filing Married Filing Jointly, enter the combined total of all taxable state and local refunds related to the prior year's return.
Common Situations
Single Last Year, Married Filing Jointly This Year
Both spouses itemized deductions last year
- Enter the combined total from both Forms 1099-G.
Only one spouse itemized deductions last year
- Enter only the refund from the spouse who itemized.
- Do not include the refund from the spouse who claimed the standard deduction.
Married Filing Jointly Last Year and This Year
- Enter the total of all refunds reported on all Forms 1099-G related to that joint return.
Where Do I Enter Form 1099-G Box 2 in the Program?
Go to:
Federal → Income → Select my forms → State & Local Tax Refunds
Enter the information from your Form 1099-G and answer the worksheet questions. The program will determine how much of the refund is taxable and automatically include the correct amount on your federal return.
Keep in mind that the taxable amount may be less than the refund shown in Box 2, and in some cases it may be zero.
Tax Tip
If you're unsure whether you itemized deductions in the prior year, review a copy of last year's federal return. Look for Schedule A, Itemized Deductions. If no Schedule A was filed, your state refund generally will not be taxable.