State Tax Refunds and Form 1099-G: What to Know
Published November 4, 2026
A state or local government may refund income tax that you paid to it. It may also apply a refund as a credit, or use it to pay a debt you owe to that government. The government reports this on Form 1099-G, Certain Government Payments. IRS: About Form 1099-G
Where the amount appears
State and local income tax refunds, credits, and offsets go in box 2. The government files this box when the amount meets the reporting threshold in the instructions. IRS: Instructions for Form 1099-G
Box 1 is different. It shows unemployment compensation. Your state refund is not reported there.
When a state refund is taxable
A state refund is generally taxable only if you deducted that state tax on your federal return in an earlier year. If you took the standard deduction that year, you generally did not deduct the state tax. In that case the refund is generally not included in your income. IRS: Publication 525, Taxable and Nontaxable Income
A federal income tax refund is never taxable. Only state and local refunds can be. IRS: Publication 525
How the taxable part is figured
If you itemized and deducted state tax, you may have to include part of the refund in income. If you file Form 1040, use the State and Local Income Tax Refund Worksheet in the Schedule 1 instructions. The worksheet figures the taxable amount, which can be less than the full refund. IRS: Publication 525
In some cases the IRS uses a second worksheet, called Worksheet 2, to figure recoveries of itemized deductions. Publication 525 explains when. IRS: Publication 525
A worked example
Illustration only, with made-up round numbers.
Ben took the standard deduction on his 2024 federal return. In 2025 his state sends him a $400 refund. Because he did not deduct state tax in 2024, the refund is generally not included in his 2025 income. He still keeps the Form 1099-G, if one was sent, with his records.
Refunds, credits, and offsets
Box 2 covers three things: a refund, a credit, or an offset. A credit is an amount applied to a later year of state tax. An offset is an amount the state keeps to pay another debt you owe to the state. The IRS instructions say these amounts are reported in box 2 when the state tax agency pays them.
Some state payments come from special state programs, such as certain energy credits. Read the notes on your form to see what your state reported.
Common mistakes
A common mistake is to treat every state refund as taxable, or to ignore a refund because the amount looks small. Both can lead to a wrong return. Compare box 2 with your state's records, and compare your prior-year deduction with the worksheet.
Also check whether the amount in box 2 includes an offset you did not expect. An offset can happen when a state applies your refund to a debt you owe to the state.
Check your form before you file
- Find any Form 1099-G from your state. The payer should send it by January 31.
- Read box 2. Confirm the amount matches your state's records.
- Check whether you itemized and deducted state tax on your federal return for the prior year.
- If you itemized, use the worksheet in the Schedule 1 instructions.
- If you did not get a form and think you should have, contact your state tax agency.
Payers are not required to send a form to a person who did not itemize in that year. Your state may post forms online. Check there first.
General information, not advice about your return.
Sources: Sources: IRS, About Form 1099-G (https://www.irs.gov/forms-pubs/about-form-1099-g); IRS Instructions for Form 1099-G (https://www.irs.gov/pub/irs-pdf/i1099g.pdf); IRS Publication 525, Taxable and Nontaxable Income (https://www.irs.gov/pub/irs-pdf/p525.pdf) This is general information, not advice about your specific return.
