From the TurboTax Website:
"State tax refunds
When you receive a refund, offset, or credit of state or local income tax, that amount appears in box 2 of the 1099-G form. However, you don't necessarily have to report this amount on your federal tax return or pay additional federal taxes.
You only need to report it as federal income if you took a federal deduction for paying those taxes in a prior year and that deduction actually reduced your federal taxes. Box 3 of the form will indicate the relevant tax year."
From the H&R Block website:
"1099-G Form for State Tax Refunds, Credits or Offsets
If the state issues you a refund, credit or offset of state or local income, that amount will be shown in Box 2 of your 1099-G form. The most common reason for receiving a refund is because of an overpayment of state taxes, as explained in the example below. This payment may or may not be taxable to you. If you claimed the
standard deduction on your previous year’s return, the amount is not taxable to you.
However, if you claimed
itemized deductions on the previous year’s return, all or part of the refund is taxable in the year you receive the refund if you also deducted state and local income taxes, and received a tax benefit from deducting those taxes."
Make sense?