U.S. · Tax forms
1099-G box 2 state or local tax refund.
Whether this refund is income depends on what you did the year you paid the tax.
None of a state or local income tax refund is taxable if, in the year you paid the tax, you did not itemize or you elected the state and local sales tax deduction. If you itemized the income tax, use the State and Local Income Tax Refund Worksheet in the Form 1040 instructions, unless one of the listed exceptions sends you to Publication 525.
Does the refund get taxed?
Result
What box 2 includes and excludes
| Item | What the payer reports | What it means for you |
|---|---|---|
| Refunds, credits and offsets | Refunds, credits or offsets of $10 or more of state or local income tax paid to you. | The core of box 2. |
| Refundable state credits | Refunds or carryforward credits of overpayments due to refundable credits paid under state tax law. | Included when administered by the state tax agency. |
| Examples | Filmmaker incentive credits, home improvement credits in low-income areas and solar installation credits are generally box 2 items. | To the extent paid or allowed as a carryforward. |
| Grants and subsidies | Not box 2. Payments under state grant, incentive, subsidy or individual assistance programs are excluded; taxable grants go in box 6. | See the 1099-G box decoder. |
| Income taxes only | Taxes on dividends, capital gains and unincorporated business net income count as income taxes, so refunds of $10 or more are reportable. | Not gross receipts taxes. |
| Box 3 | The tax year the refund is for; blank if it is for the current year. | Tells you which year's deduction it recovers. |
| Box 8 | X if the refund is of a tax that applies exclusively to income from a trade or business. | The recipient copy is always furnished. |
| Interest on the refund | Interest meeting the reporting threshold is reported on Form 1099-INT, not here. | Taxable interest separately. |
Who receives a form
The 1099-G instructions say the payer does not have to furnish a copy to you if it can tell you did not claim itemized deductions on your federal return for the tax year that gave rise to the refund, but must always file the form with the IRS. A 1099-G for a tax on the net income of an unincorporated business must always be furnished to you. The Form 1040 instructions say that if you did not receive a 1099-G, you should check with the agency, because it may have been made available electronically only, and that you must report any taxable refund even without the form.
The one rule that decides most cases
The Form 1040 instructions state it plainly: none of the refund is taxable if in the year you paid the tax you either did not itemize deductions or elected to deduct general sales taxes instead of income taxes. If you chose to apply part or all of a refund to your 2025 estimated state tax, that amount is treated as received in 2025. Where the refund is for 2024 tax you deducted on your 2024 Schedule A, use the worksheet in the Form 1040 instructions to see how much is taxable.
When the worksheet does not apply
The Form 1040 instructions send you to the Itemized Deduction Recoveries section in Publication 525 instead of the worksheet in cases such as: the refund is for a tax year other than 2024; it is a sales tax or property tax refund; you owed alternative minimum tax in 2024; you could be claimed as a dependent by someone else in 2024; your 2024 state refund is more than your 2024 income tax deduction minus the sales tax deduction you could have taken; or you made your last payment of 2024 estimated tax in 2025. Several other cases are listed in the instructions.
Not tax advice
This page summarizes IRS instructions for the 2025 form year. Which year's rules apply depends on the year you paid the tax. A preparer can run the worksheet with your prior return in hand.
Where next
Other boxes on the form are in the 1099-G box decoder. For unemployment, see the state unemployment benefit estimator.
Sources
- Instructions for Form 1099-G: Box 2, Box 3, Box 6, Box 8 and Statements to Recipients.. Read November 2, 2026. (IRS page last reviewed May 6, 2026.)
- Instructions for Form 1040 (2025): Taxable Refunds, Credits, or Offsets of State and Local Income Taxes, including the Exception list.. Read November 2, 2026. (IRS page last reviewed May 7, 2026.)
Line and box numbers are those printed in the IRS instructions named above and can change from year to year; match each box by its label.
Frequently asked questions
What is box 2 on a 1099-G?
Box 2 is a refund, credit or offset of $10 or more of state or local income tax paid to you.
Is my state tax refund taxable?
Only if you deducted that tax on Schedule A in the year you paid it. None is taxable if you did not itemize or elected the sales tax deduction.
What does box 3 mean on a 1099-G?
Box 3 is the tax year the box 2 refund is for. It is blank if it is for the current year.
What if I did not receive a 1099-G?
The Form 1040 instructions say to check with the agency that made the payment; the form may be electronic only. You must report any taxable refund even without the form.
Is a state grant a box 2 refund?
No. Grant, subsidy or assistance payments are not box 2. Taxable grants are reported in box 6.
Not tax advice
This page summarizes IRS instructions, mostly written for the people who prepare the form, and is not tax, legal or financial advice. The payer, a CPA or an enrolled agent can confirm what a box or code means for your return. Everything runs in your browser; nothing you enter is sent anywhere.