If you itemized deductions last year, any state income tax refund you received is taxable on your 2013 return. Report it on Line 10, Form 1040.
Conversely, if you claimed the standard deduction, no worries. The state income tax refund isn’t taxable.
The taxable portion of the state income tax refund is the amount used to offset your federal income tax liability. Refer to Form 1099-G, Certain Government Payments, you’ve received from the state. Calculate the taxable portion of your state tax refund using the worksheet on page 23 of the Form 1040 instructions.
Tip: It may be necessary to use Worksheet 2, Recoveries of Itemized Deductions, found in Pub. 525, Taxable and Nontaxable Income, if you paid the alternative minimum tax (AMT) last year or if you received reimbursements for any other itemized deductions.