If you itemized deductions on your Federal income tax return for 2001 or a prior year, and received a refund of state or local taxes in 2002, you may have to include all or part of the refund in your income on your 2002 tax return. You should receive Form 1099G (PDF), Certain Government and Qualified State Tuition Program Payments, advising you of the refund amount. If any of your refund is taxable, you must file Form 1040 (PDF). You can usually use the worksheet in the Instructions for Form 1040 to determine the taxable portion of your refund. However, if any of the exceptions listed in the instructions applies to you, refer to Publication 525 (PDF), Taxable and Nontaxable Income. It contains further information on how to compute the taxable portion of the refund, and special worksheets.

If you did not itemize deductions on your Federal tax return for the year to which the refund applies, do not report any of the refund as income. However, any interest you may have received on that refund must be reported as interest income in the year received.

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