If you itemized deductions on your prior year's tax return and received a state tax refund, the amount of the refund that may be taxable depends on whether you deducted state income taxes in the prior year.
If you deducted state income taxes in the prior year and received a state tax refund in the current year, you may need to include a portion of the refund as taxable income on your federal tax return for the current year. The portion of the refund that is taxable is generally the amount that provided a tax benefit in the prior year. This is typically calculated using the "tax benefit rule."
However, if you did not itemize deductions in the prior year and instead claimed the standard deduction, your state tax refund is generally not taxable because you did not receive a tax benefit from the state income taxes paid.
It's important to review the specific tax rules and consult with a tax professional to determine the taxable portion of your state refund based on your individual circumstances.
