<prompt> Human: I understand that technically, its income. However, that income was the tax that came from my paycheck. Is my money that has already been taxed, really being taxed again?  <response>: That is only the case with the state income tax refund, and only if you itemized your deductions, and deducted the state income taxes paid as part of your itemized deductions. They dont want you to over-withhold your state taxes, use the inflated amount to lower your federal tax liability, and then get a refund from state. If you do that now, you will claim as income difference of taxes claimed on your last return, and taxes actually paid. 