Is interest earned on NY State tax refund taxable by IRS? Do I need a 1099-INT?
I got an interest payment along with my 2023 New York State tax refund in 2024, but they didn't send me a 1099-INT form for the interest portion. The refund itself was around $875, and the interest payment was about $28. I'm working on my federal taxes now and I'm confused about whether I need to report this interest payment on my federal 1040 form since I don't have any official document showing it. Does anyone know if interest on state tax refunds is considered taxable income by the IRS? And do I still need to report it even without receiving a 1099-INT? Thanks for any help!
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Anastasia Popova
Yes, interest paid on state tax refunds (including New York State) is taxable at the federal level, even if you didn't receive a 1099-INT form. The state isn't required to issue a 1099-INT for interest payments under $10, but you're still obligated to report all interest income regardless of the amount. When completing your federal tax return, you should include this interest income on Schedule B (Interest and Ordinary Dividends) and then it carries over to your 1040. It's considered ordinary income, just like interest from a bank account. Keep in mind that only the interest portion is taxable this way - the refund itself may be taxable as well but that's handled differently (as a recovery of state tax deductions from prior years, reported on Schedule 1).
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Sean Flanagan
•Thanks for the info! I'm in a similar situation but with California. If the interest amount is small (like $15), do I really need to worry about reporting it? Seems like such a hassle for a tiny amount that probably won't affect my taxes much.
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Anastasia Popova
•Yes, technically all interest income must be reported regardless of the amount. While it's a small sum and might not significantly impact your tax liability, the IRS expects all interest income to be included. The tax difference might be minimal, but it's better to report it correctly than risk issues later if you're ever audited. The IRS does receive information from state tax authorities, so they may know about this payment even without a 1099-INT.
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Zara Shah
Just wanted to share my experience - I was in a similar situation last year trying to figure out if I needed to report my state refund interest. I ended up using https://taxr.ai to analyze my tax situation, and it was super helpful for this exact issue. I uploaded my state refund documents, and it immediately identified that the interest portion needed to be reported on my federal return even without a 1099-INT. It even showed me exactly where to report it on Schedule B and calculated the tax impact (which was minimal but still required). Really took the guesswork out of the whole situation!
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NebulaNomad
•How exactly does the tool work? Does it just give general advice or does it actually look at your specific documents and tell you what to do with them?
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Luca Ferrari
•I'm skeptical about these tax tools... I've tried a couple before and they just seemed to give generic advice I could find on Google. Does it actually do anything beyond what TurboTax or H&R Block software would tell you?
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Zara Shah
•The tool analyzes your actual tax documents rather than just giving generic advice. It uses AI to read through your specific documents and identify reportable items that might be missed, like this state tax refund interest situation. It caught several things in my documents that I wouldn't have known to report. As for comparison with TurboTax or H&R Block, the main difference is that it focuses specifically on document analysis before you even start the tax prep process. It helps identify what forms you need and where specific income should be reported based on your actual documents, rather than just walking you through a standard questionnaire. I still used TurboTax to file, but with much more confidence that I was including everything correctly.
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Luca Ferrari
Update on my skepticism about taxr.ai - I actually tried it after my last comment and have to admit it was surprisingly useful. I had several 1099s, W-2s, and some state tax documents including a refund with interest (similar to the original post). The tool identified everything precisely and pointed out that my state refund interest needed to be reported on Schedule B line 1, which I honestly would have missed. It also flagged that part of my state refund itself was potentially taxable based on my previous year's deductions. Definitely more helpful than I expected for someone in my slightly complicated tax situation!
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Nia Wilson
If you're still trying to figure this out, another issue you might run into is trying to contact the IRS directly to get clarification. I tried calling them about a similar issue last year and spent DAYS trying to get through. Eventually found https://claimyr.com which got me connected to an actual IRS agent in about 20 minutes instead of waiting on hold forever. You can see how it works here: https://youtu.be/_kiP6q8DX5c - basically they navigate the phone tree and wait on hold for you, then call you when an agent is ready. I was able to confirm directly with the IRS that state tax refund interest is always federally taxable regardless of amount and whether you got a 1099-INT. The agent also told me the exact line where to report it. Worth it just to get a definitive answer straight from the source.
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Mateo Martinez
•How does this actually work? Do they somehow have a special line to the IRS or something? Seems too good to be true that they can get through when no one else can.
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Aisha Hussain
•Yeah right... pay someone else to wait on hold? I'll believe it when I see it. The IRS phone system is completely broken - I've called dozens of times this year and NEVER got through. No way some service magically fixes that.
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Nia Wilson
•They don't have a special line to the IRS - they use technology to navigate the phone systems and wait in the queue for you. Think of it like having someone else wait in a long physical line while you do other things, then they call you when it's your turn. The service uses automated systems to continuously call and navigate the IRS phone tree during peak availability times, which is how they're able to eventually get through when individuals might give up. When they finally reach a human agent, they connect you immediately. It's not magic - it's just persistence and technology that most of us don't have access to.
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Aisha Hussain
Ok I need to eat my words about Claimyr. After posting that skeptical comment, I got so frustrated trying to reach the IRS again about my state tax refund interest question that I decided to try it. I was SHOCKED when I got a call back in about 40 minutes saying they had an IRS agent on the line. The agent confirmed everything - yes, NY state refund interest is federally taxable (report on Schedule B), and yes you have to report it even without a 1099-INT. She even explained that the state isn't required to issue a 1099-INT for amounts under $10, but the taxpayer still has the obligation to report all interest income. Saved me hours of frustration and gave me peace of mind that I'm doing it right. Never thought I'd be recommending something like this, but it actually works.
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Ethan Clark
Quick tip from someone who works with taxes: Look at your state refund check stub or direct deposit details. The interest amount is usually itemized separately there, so you can still report the correct amount even without a 1099-INT. NY State (and most others) calculate interest on refunds that are issued beyond a certain timeframe, usually 45 days after filing.
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StarStrider
•Do you know if this is the same for all states or just New York? I'm in Texas and we don't have state income tax, but I got a property tax refund with interest and wondering if that follows the same rules.
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Ethan Clark
•The federal taxation rules apply to interest from any state government refund, including property tax refunds. The key is that it's interest paid to you, which is always federally taxable regardless of which state paid it or what type of refund generated it. For property tax refunds specifically, only the interest portion is reported as interest income. The refund itself isn't typically taxable unless you deducted those property taxes previously (in which case it might be subject to the tax benefit rule). Each state has different rules about when they start paying interest on refunds, but the federal tax treatment of that interest remains the same.
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Yuki Sato
does anyone know if there's a minimum amount of state refund interest that we need to report? like if its only $12 of interest do I really need to bother with it? seems like the IRS wouldn't care about such a small amount
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Carmen Ruiz
•There's technically no minimum threshold for reporting interest income to the IRS. All interest income, regardless of amount, is supposed to be reported. The $10 threshold only applies to when the payer must issue a 1099-INT, not to when you need to report it.
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