Do You Have To Claim Last Year's State Refund On Your Federal Tax Return?

If you deducted your state income tax on your federal form and received a refund, you must report it as income.
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While it felt good receiving that state income tax refund last year, don't consider it completely "found money." Whether or not you have to claim the refund on this year's taxes depends on whether you itemized your deductions on your federal return.

Form 1099-G

If you receive Form 1099-G in the mail, referred to as "certain government payments" by the Internal Revenue Service, it shows your state refund amount from the previous year. If you deducted the state income tax you paid on your federal tax form as an itemized deduction, you'll have to include any refund amount as income on the following year's taxes.

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