don't think the IRS tries to match state tax refunds with 1099-G's. first, if it's nontaxable it will not show up ANYWHERE on the 1040 - NO SCHEDULE - NOTHING. You'll note that line 1 of schedule 1 only says enter "taxable refunds". there's no way to tell the IRS that a particular year's refund is nontaxable. even if you itemized the refund might not be taxable because you paid Alternative Minimum Tax. When I prepared returns as a professional, I only reported taxable refunds and in decades my clients never got an inquiry.
your way would require making them taxable so they how up on schedule 1 line 1 and then take a subtraction on schedule 1 line 8. this could prompt an IRS inquiry
