This has been an issue for some TurboTax users and it is being worked on.
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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 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
