State Tax Refund—Why Do I Have To Report It As Income?
If you receive a deduction on your taxes for something and later recover the "loss," you must return the "loss" to your income. This rule, the Tax Benefit Rule, is seen most often when a taxpayer receives a 1099-G on their state tax refund from the prior year. For an explanation of how the Tax Benefit Rule works and other instances where you should consider adding this money to your income, read this C.P.A. Insight.