@MelindaS1 Thank you very much for your detailed response. I have the desktop version of TT (I downloaded it), but am still trying to familiarize myself with the "quick zoom" feature of the forms. From that I was able to determine that TT is handling the portion of the refund for 2024 taxes that was paid in 2025 as taxable income. IOW, the "deduction to the deduction" on Schedule A, line5, is:
amount of 2024 refund to be taxed in 2025 =
((2024 estimated tax pd in 2025)/ (2024 estimated tax + withholding)) * total_refund
That makes sense assuming that I am supposed to be taxed because some payments were made in 2025. However, I do not understand the "why" of it. My understanding is that a refund from a tax year in which you did *not* itemize (i.e., took the standard deduction) is not taxable, no matter when all the estimated taxes were paid.
The TT reference:https://blog.turbotax.intuit.com/tax-tips/is-my-state-tax-refund-taxable-and-why-90/ says
When it’s not taxable
Your state income tax refund is not taxable if:
- You claimed the standard deduction instead of itemizing on your prior year federal tax return.
- You didn’t claim a deduction for state and local income taxes paid on your prior year federal tax return.
Tax Act and H&R Block have similar statements.
Also, TT for 2025 asks about refunds for 2024. On the screen that says
Let's get some details from your 2024 federal tax return
Did you take the Standard Deduction or itemize?
[I selected]
O I took the Standard Deduction.
[I did not select "I itemized my deductions"]
And here's the kicker: after I click on the Continue button at the bottom of that screen, the next screen says:
Good News!
Your refund isn't taxable.
This includes any state and local funds.
TT knows when I made all my estimated tax payments. So which it is? Do I misunderstand the guidance that you are not taxed for refunds that are from a year in which you did not itemize, or is TT's "Good News!" screen simply wrong or misleading?
Apologies for the long post and congratulations if you made it this far!
