Taxable Refunds, Credits, or Offsets of State and Local Income Taxes

If you itemized tax deductions on your tax return for 2007 or a prior tax year and previously deducted state tax or local tax paid, and received a tax refund of some or all of the state tax or local tax in 2008, you should include the tax refund as taxable income on your 2008 tax return. Enter the amount of your previously deducted state tax or local tax refund on Line 10 of Form 1040. If you did not itemize your tax deductions on your tax return for the same tax year as the state tax refund or local tax refund, do not report any of the tax refund as taxable income on your tax return.

If you received a refund, credit, or offset of state or local income taxes in 2008, may receive a Form 1099-G.

None of your refund is taxable if, in the year you paid the tax, you either (a) did not itemize deductions, or (b) elected to deduct state and local general sales taxes instead of state and local income taxes.