When you get a refund from a state for a previous year, TurboTax asks you some questions to determine if the state tax refund is taxable in the current year.
For example, if you use the Standard Deduction in the previous year, this means that you did not use this refund as a deduction in the previous year. So in this case, you don't report it as income in the current year.
By "you don't report it as income in the current year", I mean just that - you won't see any reference to this refund on your current year tax return, and that's OK
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