Get your taxes done using TurboTax

It depends. When you tell TurboTax you received a refund for a prior year (2023), the software expects the Total Payments you made for that year (withholding + estimated payments) to be greater than or equal to the refund you received. In your case:

• You entered: $516 for Total Payments. 
• You entered: $400 for the Refund (Inflation Check).
• The Conflict: While $516 is technically more than $400, TurboTax is likely adding that $400 to any other state refund you might have already reported for 2023. If the sum of all "refunds" for 2023 exceeds $516, If the "Payments and Withholding" field doesn't match up with the "Taxable Amount," the system will flag it.

The instructions you followed suggested entering a 0 for payments, but since you entered $516, the system is now looking for a perfect mathematical match. To bypass this error while still ensuring the income is taxed federally but subtracted from NYS, try this:

1. Match the Payments to the Refund: If the error persists, change the Payments and Withholding amount for that specific 1099-G entry to match the Refund Amount exactly ($400). This tells the software: "I paid in $400, and I got $400 back." This usually satisfies the "Check This Entry" validation because the refund no longer exceeds the payments. 
2. Verify the "Taxable Amount" Screen: Ensure that on the screen titled "Tell us the taxable amount of your refund," you have entered the $400. This is the trigger that puts the money on your Federal 1040 (Line 8z) as "Other Income."

Check for Duplicate 1099-Gs: Go back to the Refunds Received for State/Local Tax Returns summary screen. Ensure you don't have two separate entries for the same 2023 NY refund—one for your original refund and one for this inflation check—that combined are exceeding your total 2023 tax payments.

Before you file the amendment, check these two spots to make sure it worked:

1. Federal Form 1040, Schedule 1, Line 8z: Should show $400. 
2. NYS Form IT-201, Line 25 (Standard) or 29 (Itemized): Should show a subtraction for this amount (often labeled as S-138 or included in the refund subtraction logic) so you aren't paying NYS tax on NYS's own rebate.

The reason why all of this is confusing is that state refunds are only taxable if you itemized the previous year. However, NYS Inflation Relief checks are unique: the IRS considers them taxable income for everyone (Federal), but NYS law says they aren't taxable for the state. When you enter it as a "State Refund" and mark it as "Taxable," you're using a workaround to make sure TurboTax reports the numbers correctly.