The 2018 1099G tax refund is not taxable if the taxpayer took the Standard Deduction on the 2017 return.
If the taxpayer took itemized deductions on the 2017 return, the refund is taxable, but only to the extent that the tax caused itemized to be higher than standard.
For example, say the standard deduction was 6,500. The taxpayer itemized and claimed 7,000. The taxpayer claimed 1,000 in state "payments and withholding". The state refund was 900. Only 500 of the refund is taxable because only 500 of the tax was more than the standard deduction that the taxpayer could have claimed.
