The question refers to a Standard Deduction on the 2022 Federal 1040 tax return.
If you claimed the Standard Deduction on the 2022 Federal 1040 tax return but itemized deductions on your 2022 state income tax return, you will select "I take standard".
The state tax refund for tax year 2022 is generally received in 2023. There are instances where this state tax refund (or a portion of it) is considered taxable income on the 2023 Federal 1040 tax return.
The short test for whether the state tax refund is considered taxable income on the 2023 Federal 1040 tax return is whether or not the Standard Deduction was claimed on the 2022 Federal 1040 tax return.
See also this TurboTax Help.
@danilol
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