Is my state tax refund taxable if I took the standard deduction?
I received a Form 1099-G for a state tax refund. Last year I did not itemize deductions on my federal return. Do I still report the refund as taxable income?
Generally, no. If you used the standard deduction for the year that generated the state refund, you did not deduct the state income tax as an itemized deduction on Schedule A. Since there was no federal tax benefit from deducting that state tax, the later refund generally is not taxable under the state-tax-refund recovery rule.
Still enter the Form 1099-G information carefully in preparation software, because the software may ask prior-year questions to confirm the result. The EA exam point is the same: the refund is taxable only when the earlier deduction produced a federal tax benefit.
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