This has been a known issue for some users of TurboTax.
Here are the steps to correct it:
- Go to Federal
- Wages and Income
- Other Common Income
- Refunds Received for State/Local Tax Returns
- Revisit
- Delete the entry there
- Enter your state refund 1099-G again.
If all three of the following are true, your refund counts as taxable income:
- You itemized deductions last year, instead of taking the standard deduction
- You claimed state and local income taxes (not general sales taxes)
- Claiming the deduction helped you increase your federal refund or lower your tax bill
