You may not have physically received the state refund but you received the benefit of the refund. It is being used to reduce taxes owed the following year. For example, it is the same as if you received the refund in your hand but chose to pay future taxes with it instead of depositing and using for something else.
State Income Tax refunds may be taxable income for federal purposes for individuals who itemized their deductions on their federal tax return in the previous year.
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