In the tax world, overpayment and refund are interchangeable. They are refunding your overpayment, or your overpayment is being refunded - whichever way you prefer.
This is only taxable (and sometimes not all of it) if you itemized the year before and used a state taxes paid deduction. If you did not itemize in the prior year, you don't have to enter it.
However, if you do enter it, TurboTax is smart enough not to tax it. You will see it as a reported item but not a taxable item.
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