If you itemized on the 2017 return and the state taxes paid were deducted, then the amount of the refund (in your case you chose to apply to 2018) would be taxable income on the 2018 Federal return. If you did not itemize in 2017, then it is not taxable income in 2018. When you enter the 1099G in TurboTax, the program will walk you through to determine if it is taxable or not to you.
