Updated October 16, 2026. Quick answer: Box 2 of Form 1099-G (Rev. December 2026) shows refunds, credits or offsets of state or local income tax, and box 3 shows the tax year they were made for. The recipient instructions say the amount may be taxable to you if you deducted the state or local income tax paid on Schedule A (Form 1040). Interest on the refund is reported separately.
IRS worksheets read line by line: Worksheet 2, Recoveries of Itemized Deductions.
IRS worksheets from the 2025 Form 1040 instructions, read line by line: State and Local Income Tax Refund Worksheet.
Schedule 1 (Form 1040) for 2025, read line by line: Schedule 1 line 1 and Schedule 1 line 7.
Form 1040 for 2025, lines 12 to 38 read line by line: Form 1040 line 25.
Read box by box from the IRS instructions: Form 1098 box 4.
The employee copy of Form W-2, read box by box: W-2 boxes 15 to 17.
What boxes 2 and 3 report
The recipient copy describes box 2 as follows: “Shows refunds, credits, or offsets of state or local income tax you received.” On the form the line reads “State or local income tax refunds, credits, or offsets”. Box 3 is a companion: “Identifies the tax year for which the box 2 refunds, credits, or offsets shown were made.”
The form is a statement from a state or local tax agency, not a bill. The box 2 text is part of the same recipient instructions that govern every box on the form, which are collected in the 1099-G and 1099-K boxes guide.
When the refund may be taxable
The rule in the recipient instructions turns on whether you deducted the tax. “It may be taxable to you if you deducted the state or local income tax paid on Schedule A (Form 1040).” Schedule A is walked through on the Schedule A page, and the state and local tax deduction limit that sits on that schedule is covered on the 2026 SALT cap page.
The payer instructions describe the same dependency. “If recipients deducted the tax paid to a state or local government on their federal income tax returns, any refunds, credits, or offsets may be taxable to them.”
The recipient copy also says the deduction history matters even when no cash arrived. In practice the question to answer before you file is simple: in the year the refund relates to, did you itemize and deduct state or local income tax on Schedule A? Your own prior-year return is the record that answers it, and the form in your hands only supplies the amount and, in box 3, the year.
A refund you did not receive in cash
The instructions anticipate refunds that were redirected. “Even if you did not receive the amount shown, for example, because” one of these applied, “it is still taxable if it was deducted”.
| If you did not receive the cash | How the recipient instructions list it |
|---|---|
| It was credited to your state or local estimated tax | “it was credited to your state or local estimated tax” |
| It was offset against federal or state debts | “it was offset against federal or state debts” |
| You gave part of it to charity | “you made a charitable contribution from your refund” |
Box 3 and the year the refund belongs to
The payer instructions say when box 3 is filled in. “No entry is required in box 3 if the refund, credit, or offset is for the current tax year.” “If it is for any other tax year, enter the year for which the refund, credit, or offset was made.” They add that “if the refunds, credits, or offsets are for more than 1 tax year, report the amount for each year on a separate Form 1099-G”. A blank box 3 is therefore a normal entry, and several forms from one payer can be explained by different tax years.
Interest on the refund and what the payer must do
A refund that earned interest may produce a second form. “If you received interest on this amount, you may receive Form 1099-INT for the interest.” “Regardless of whether the interest is reported to you, report it as interest income on your tax return.” The interest side is explained on the 1099-INT box 1 page.
You may also not receive the form at all. “You are not required to furnish a copy of Form 1099-G or a substitute statement to the recipient if you can determine that the recipient did not claim itemized deductions”. The same paragraph adds that the payer “must file Form 1099-G with the IRS in all cases”, so the agency’s copy exists even if yours does not.
Edition and box numbers
The primary read for this page is the December 2026 revision of Form 1099-G (recipient copy, Copy B) and the December 2026 Instructions for Form 1099-G. The instructions describe their own use this way: “Use the December 2026 revision of Form 1099-G and these instructions to file 2026 information with the IRS in early 2027.” irs.gov was serving that revision on 2026-10-16. The March 2024 revision of the instructions is the previous one and was used for comparison. Boxes 2 and 3 have the same numbers in the March 2024 revision, whose payer instructions open box 2 with “Enter refunds, credits, or offsets of state or local income tax of $10 or more”. The December 2026 revision added a new box 10 for family leave benefits, which is why the state boxes are now 11a, 11b and 12. Check the revision printed on the form you received, because the box numbers after box 9 differ between the two revisions.
Common mistakes
- Treating every box 2 amount as taxable. The recipient instructions tie it to the deduction: “It may be taxable to you if you deducted the state or local income tax paid on Schedule A”.
- Ignoring a refund that was credited or offset. The instructions say “it is still taxable if it was deducted” even if you never received the cash.
- Forgetting the interest line. The instructions say “report it as interest income on your tax return” whether or not a 1099-INT arrives.
Related: Schedule A (Form 1040), the 2026 SALT cap, the 2027 SALT cap, and 1099-INT box 1 interest income.
Sources
- Form 1099-G, Certain Government Payments (Rev. December 2026), recipient copy: https://www.irs.gov/pub/irs-pdf/f1099g.pdf
- Instructions for Form 1099-G (Rev. December 2026): https://www.irs.gov/pub/irs-pdf/i1099g.pdf
- Instructions for Form 1099-G (Rev. March 2024): IRS archived PDF (irs.gov)
Read from the IRS documents linked above on October 16, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the account provider or the IRS is the right place to confirm anything consequential.