Is an Unclaimed Property cash refund taxable as income on federal and state returns if it was a Certificate of Deposit?

[scooby2003-]

Our bank surrendered my children's Certificate of Deposit's purchased by their grandfather (for their education expenses) due to "lack of activity" to the Unclaimed Property Division of the Michigan Dept. of Treasury. My son's CD was refunded with interest totalling $24.12. My daughter's was refunded without any interest. I, in turn, deposited both refunds (in their entirety) in each of their established MESP "529" accounts.

Do they need to report the total amount refunded to each by the State as "other reportable income" on their federal and state tax returns, or does just my son need to report the interest amount, even though he didn't receive a 1099-INT from the State of MI?

Are both children liable for interest earned on the original value of their CD while it was in possession of the bank? 

[DDollar · Accepted solution]

You do not report the CDs as income, the state was just giving them what already belonged to them.  Your son should report the interest.  Because the amount is so small it does not require a Form 1099-INT.  If there was taxable interest on the CDs, then the bank should have reported it on a Form 1099-INT in the year the interest was earned, whether paid out or not.  I would not worry about any past interest.