Unless Minnesota is one of the states that allows a deduction for federal taxes. I don’t have the list but I know that some states do allow a deduction for federal taxes on the state income tax return.
Anytime that you receive a rebate or reimbursement or refund of a tax deduction, that properly becomes taxable income. It is typically called a “taxable recovery”. If your state allows you to deduct federal income taxes on your state tax return and you do take the deduction, then any federal refunds are taxable income. If your state allows a deduction for federal taxes but you don’t take the deduction, perhaps because you use the standard deduction instead, then the refund will not be taxable.
If the refund is taxable, there is not much you can do to reduce the tax impact after December 31. The only options I can think of are to contribute to a traditional IRA or a health savings account if you are eligible.
