The receipt of a state or local income tax refund in a subsequent year is not taxable if the taxes paid did not reuslt in a tax benefit in the prior year.  1) prior year itemized = taxable state or local refund 2) Prior year used Standard deduction  = non taxable I do not see any reason/impact in this two deduction method to make state tax refund taxable in case #1. As you know State does not allow itemized method to compute taxable income otherwise it would have made difference.   Let us assume that you asked your employer to withheld extra money or volunteered to pay extra to state tax.  Because of extra withheld and additional contribution to state tax may end getting refund and will be taxable as per scenario #1.   Why discrimination to those who Itemize and Don’t? What is the correlation,  to be taxed for state tax refund to those who itemzed? Relationship or reason to make it taxable, if you see the reason , can you explain?