Is state income tax refund always counted as income

[robertrkellymi]

In 2015 I was never a resident of Michigan, and had zero income in MI. But I mistakenly had withholding deducted for the wrong state (MI). The mutual fund company could not back out the transaction and advised I file a return to get it (Zero income and 1224 withheld) This year 1224 is being shown as income

[AnnaB · Accepted solution]

No, it only becomes taxable income if you itemized your deductions in the prior year and received a tax benefit for state taxes paid.  Since the amounts were paid during 2015, then they would be included in Schedule A as a deduction (unless you claim state sales tax paid).  Therefore, when you receive a refund, you must recover this deduction as income in the year received.