I itemized in 2021 and received a tax benefit, so my $250 Va. tax rebate received in 2022 should be claimed as income. When I entered the $250 into 2022 Turbotax as a tax refund, I got a message that said "It turns out part of your 2021 refund is taxable." and "$155 from your 2021 state tax refund is taxable on this year's federal return". Also, "Because you paid part of your 2021 taxes in 2022 we will reduce your state and local income tax itemized deductions on your federal Schedule A, line 5, by $95". So $95 was subtracted from my 2022 taxes paid, on line 7 of the 2022 Schedule A, and $155 was included as income on my 2022 Schedule 1 line 1. This is not related to exceeding the state income tax deduction in 2021, because on my 2021 Schedule A Line 7, I only deducted $2,428 for state income tax paid in 2021, so I was nowhere near the $10,000 limit. The proportion used to divide the $250 was calculated by the State and Local Income Tax Refund Worksheet. The Worksheet lists my $1473 payment made with my 2021 return in column 1(c) as "Estimated Tax Paid After 12/31/2021", but it was not an estimated tax payment. It was the amount owed and paid with the return.
So my questions are: (1) Did I enter the tax rebate in the right place, as a tax refund, or is there another place to enter it in Turbotax? (2) Should the entire rebate be considered income for 2022, or is this proportional treatment by Turbotax correct?
