Is Interest from Michigan State Income Tax Refund Taxable

[syoung123]

Hello, For tax year 2023 filing, I received $25 interest in 2024 on my Michigan state income tax refund because the state did not send me the refund until August 2024.  I received a 1099G from Michigan Dept of Treasury that says "calendar year 2024".  On box 2, "Michigan Income Tax Refund of Offset", it shows "Refund $0.00" and "Interest $25.00".  I called the Michigan Dept of Treasury and was told if I claimed "standard deduction" on federal income tax (which I claimed standard deduction for 2023), the Michigan 1099G is for my information only and I don't need to report the $25 interest from Michigan state as taxable income on my 2024 federal tax return.  Can someone help me to confirm this?  I know that if I receive interest from federal income tax refund for the previous year, I have to report it as taxable interest income.  Is the interest from state income tax refund different, that if I claimed standard deduction for year 2023, the interest from 2023 Michigan state income refund is not taxable for 2024 federal filing?  Thank you.

[VolvoGirl]

All interest is taxable no matter who pays it or why.  The actual state refund may or may not be taxable on the federal return.  

A State Tax Refund is taxable if you itemized deductions on that prior year's federal return and took a deduction for state income taxes instead of the sale tax.  You got a deduction benefit for it so now you have to include it as income. If you took the standard deduction it is not taxable and you don't need to report it.

[syoung123]

To clarify -

1.  I used standard deduction for 2023 federal tax filing, so the state income refund itself is not taxable for year 2024.

2.  However, I received additional $25 that was interest from the state because the state sent me the refund late.  The $25 interest is taxable income for 2024 filing.

Am I correct?

[VolvoGirl · Accepted solution]

Yes the $25 interest is taxable.  

Enter the interest like a 1099Int and put the amount in box 1.  

Enter a 1099-Int  under

Federal or Personal for Home & Business

Wages & Income at top

Interest and Dividends

Interest on 1099INT - Click the Start or Revisit button

[syoung123]

Thank you.  I also found a online link from the state that the interest shown on the 1099G Box 2, "must be included as interest income on federal return".   

[ThomasM125]

Yes, the interest income is taxable on your federal tax return.

@syoung123