Taxable Refunds, Credits, or Offsets of State and Local Income Taxes
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.
If you itemized your deductions including state tax (line 5) in the prior year then you will report the refund as "other income " under the taxable refund link.
If you received a refund, credit, or offset of state or local income taxes in the tax year, you may receive a Form 1099-G. If you chose to apply part or all of the refund to your next years estimated state or local income tax, the amount applied is treated as received in in that tax year. If the refund was for a tax you paid in the previous year and you deducted state and local income taxes on line 5 of Schedule A for that same year, then use the worksheet on page 23 of Form 1040 instructions to see if any of your refund is taxable or enter it online with the required information and the program will complete the worksheet and determine if it is taxable for you.
For Exceptions: See Itemized Deduction Recoveries in Pub. 525