If you live in Tennessee and work in KY and received a state tax refund from KY in 2014, do you have to claim that income on line 10 of your 1040?

[md1]

Since the refund was an overpayment of tax in KY, should it be taxed in the following year as Federal income?

[BarbL]

Yes, in some situations.  If you itemized your deductions in 2014 and deducted state income tax (rather than state sales tax), you may have received a tax benefit by overpaying your Kentucky taxes in 2014.  Any amount taken as an itemized deduction and later refunded must be claimed as income the following year. 

This Turbo Tax FAQ has further detail: https://ttlc.intuit.com/replies/3300438