You do not report a federal tax refund as income on your next year's tax return

A tax refund is money the IRS overheld from your paychecks or that you overpaid when you filed. It is not new income — it is your own money being returned to you. The IRS does not count refunds as taxable income, and you should not report it on your next return.

The only exception is if you received a refund in a prior year and claimed the Earned Income Tax Credit (EITC) or Child Tax Credit, and that refund was based on income you later found out you should not have claimed. In that case, you may owe back taxes. But a straightforward refund from overpayment has no tax consequence the following year.

Key Takeaways

  • Federal tax refunds are not income and do not need to be reported on your next year's return.
  • State tax refunds also do not count as income for federal tax purposes, though some states tax their own refunds under certain conditions.
  • If you received a refund and later discover you claimed income or credits you were not may have access to to, you may owe back taxes, but this is separate from the refund itself.
  • Interest earned on a delayed refund (rare) is taxable, but the refund amount itself is not.

Why refunds are not taxable income

The IRS taxes income you earn or receive. A refund is a correction of how much tax you already paid on income you reported in a prior year. Think of it as a reversal: you reported the income, you paid tax on it, and now the IRS is giving back the portion you overpaid. Reporting it again would mean taxing the same income twice.

The IRS Form 1040 instructions explicitly state that tax refunds are not income. If you received a federal refund by direct deposit or check, you will not see it reported on any IRS document sent to you for tax purposes. There is no Form 1099 for a refund, and the IRS does not send you a statement saying "you received a refund" that you then report.

State tax refunds and special cases

Most states follow the federal rule: a state tax refund is not taxable income on your federal return. However, a few states tax their own refunds under their own state income tax rules. If you live in a state that taxes refunds (this is rare and varies by state), you would report that on your state return, not your federal one.

One genuine exception exists: if you received a refund and the refund itself generated interest because the IRS delayed paying it, that interest is taxable income. This is uncommon and only happens when the IRS holds a refund for an extended period. If this occurs, the IRS will send you a Form 1099-INT showing the interest amount, and you report that interest on your return.

What to do if you claimed credits you should not have

If you filed a return claiming the EITC, Child Tax Credit, or another refundable credit, and you later discover you did not meet the requirements, the refund you received based on that credit is now considered an overpayment by you to the government. The IRS may ask you to repay it, or it may offset future refunds. This is not about reporting the refund as income — it is about correcting an error on the original return.

If this happens to you, you will receive a notice from the IRS explaining what was wrong and what you owe. You do not simply report it on your next return; instead, you follow the IRS's instructions, which may involve filing an amended return or making a payment. Contact the IRS using the phone number on the notice if you disagree with their finding.

How to handle a refund on your records

Keep the documentation showing you received the refund — a bank statement if it was direct deposited, or a cancelled check if it was mailed. You do not need to attach this to your tax return, but it is useful if the IRS ever questions your filing or if you need to prove you received money for another purpose (like a loan application).

If you are filing your own return using tax software, you will not see a line item for "report my refund." The software will not ask you for it because it is not part of the income calculation. If a tax preparer or software asks you to report a refund as income, that is a sign something is wrong with how they are handling your return.

Refunds and means-tested benefits

While a tax refund is not taxable income for IRS purposes, some government benefit programs (like Medicaid, food assistance, or housing vouchers) count refunds as income or assets when determining your may be able to access. These programs have their own rules separate from tax law. If you receive means-tested benefits, check with the program administrator before depositing a large refund, as it may affect your benefits in the following month or year.

This is not a tax reporting issue — you still do not report the refund on your tax return. But it is worth knowing if you are on a tight budget and a refund could push you over an income limit for a program you depend on.

Frequently Asked Questions

Do I report my refund on Schedule 1 or anywhere else on Form 1040?

No. A tax refund does not go on any line of Form 1040, Schedule 1, or any other tax form. It is not income. If you see a line asking for it, you are looking at the wrong form or the wrong section.

What if I got a refund and then the IRS sent me a letter saying I owe money?

The IRS may have found an error on your return — either you claimed something you should not have, or you missed reporting income. This is separate from the refund. Follow the instructions in the letter. You may need to repay part or all of the refund, but this is a correction, not a new tax on the refund itself.

If I put my refund in a savings account and it earned interest, do I report that interest?

Yes, but only the interest, not the refund. If your bank paid you interest on the refund money, that interest is taxable income. The bank will send you a Form 1099-INT if the interest is $10 or more. Report that interest on your return, not the refund amount.

Can a refund affect my taxes the next year?

Not directly. A refund is not income and does not change your tax liability. However, if you received a refund based on a credit you later found out you should not have claimed, the IRS may ask you to repay it, which is a separate matter handled by the IRS outside your normal tax return.

Should I mention my refund when I file next year's return?

No. Do not mention it anywhere. Your next year's return is based on the income and deductions for that year only. The prior year's refund has no place on it.