This makes no sense to me. If I only paid what I owed in the first place (mea culpa), there would have been no extra money changing hands and I would not have to pay more taxes on money that they didn't need in the first place. I only claimed on Schedule A the amount I owed - not the total amount I had paid. I did not receive a 1099-G for this (though I did for another matter from the same state). They had use of a very large sum withheld from a home sale, while I was without - they should owe me interest, if anything. Please explain why they should tax this so I can understand. Thanks.