State refund is 1099G

[jyeh74]

Why is a state refund sent a 1099G but a federal refund not sent?  Do they only count state refund as income but not count federal refund as income?

[xmasbaby0]

The IRS does not send you a 1099G for a federal refund.  You do not enter anything on your 2024 federal return about your 2023 federal refund.    You only enter the state refund if you itemized deductions on your federal return for 2023.    If you used standard deduction for 2023, you do not enter the state refund.

[DawnC]

Yes.  Prior year Federal tax refunds (and payments) are not taxable (or deductible) on the current year's Federal income tax return. 

If you receive a refund of (or credit for) state or local  income taxes in a year after the year in which you paid them, you may have to include the refund in income in the year you receive it. This includes refunds resulting from taxes that were over withheld, applied from a prior year return, not figured correctly, or figured again because of an amended return.   If you did not itemize your deductions in the previous year, do not include the refund in income.   If you deducted the taxes in the previous year, include all or part of the refund in the year you receive the refund.

This information is found in Publication 525, Taxable and Nontaxable Income.

[jyeh74]

yes but why is federal return not considered income?  It’s still a refund.

[jyeh74]

Why is a state refund considered taxable income but a federal refund not considered a taxable income?  What is the reason for that?

[KeshaH]

A state income tax refund might be taxable if you deducted state income taxes on your federal tax return for the year you received the refund. Essentially, you would have deducted too much tax on your federal tax return, so the IRS requires you to add the excess amount back to income. 

This prevents people from sending all of their money to the state so they can take a deduction on their federal tax return only to get it refunded later - basically making their income tax-free in a roundabout way.

If you didn't deduct state income taxes on your federal return, you will not need to pay tax on your state income tax refund.

A federal tax refund isn't considered income because you don't ever take a deduction for federal taxes paid like you can for state taxes paid.

[Edited 2/1 @ 4:40am]