Q. If I choose itemized deduction, I will pay more federal tax by $230 but less state tax by $800. So I am going to choose itemized deduction.
A. That's possible but unlikely. You're, most likely, doing something wrong.
Q. Does that mean all those $4,800 are taxable income on my future 2023 tax return or only part of that is taxable? If the $4,800 is only partial taxable, how do I know how much of that is taxable?
A. Usually all. But, it could be just part. You determine how much from the worksheet (which TurboTax does automatically). The portion of the state refund that is taxable is the portion you got a tax benefit (deduction from income) from, on the federal return, in the the previous year. Usually, it's all or none.
Q. So it seems that if your state refund is less than your state income tax, your refund will just not be taxable?
A. No. The portion of the state refund that is taxable is the portion you got a tax benefit (deduction from income) from, on the federal return, in the the previous year.
There is a way to avoid claiming the state tax income tax deduction and having to pay tax on the refund, the following year. For details, see https://ttlc.intuit.com/questions/4152717-excess-state-income-tax-withheld-for-2017-i-want-refund-fr...
