If you itemized deductions on your 2023 tax year federal return, you deducted state taxes paid.
Then, you got a refund of state tax.
Is the state refund taxable?
Think of it this way, what if you paid exactly the correct amount of state tax in 2023 and that was the number you used when you itemized, would it have made a difference on your federal return compared to what you really did file?
Example-
You claimed 10,000 state tax on your 2023 federal return and later got a 1,000 state refund.
If you had claimed 9,000 on your 2023 federal return, would that have changed your 2023 federal tax liability?
maybe.
Your "Taxable Income" on line 15 would have been 1,000 more so your tax would have been computed on 1,000 more income
But if your tax zeroed out, your tax may have still zeroed out
or maybe a non-refundable credit that was limited which would now be allowed in full.
And what if the tax claimed was subject to the SALT limit?
If you had 12,000 in taxes paid but could only claim 10,000 any refund 2,000 or less isn't reported as income.
The program is trying to figure this out for you.
If you did not use TurboTax to file your 2023 federal return, it would have no way of knowing the numbers from your 2023 return, you would need to enter everything in.
The determination of whether state tax refunded is now federal income is made with no regard to which state issued the refund. You can add the state refunds together to see if anything needs to be claimed on the federal return.
If you have access to your 2023 return, just change the schedule A deduction (subtract the refunded amount) and if it increases the tax due, that's the amount you need to claim as income.
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