The response above stating it needs to be reported as a taxable grant is not accurate. By law, it is a state tax credit, not a taxable grant. The OTC even says that it is not necessarily taxable. I have yet to find a post that clearly articulates the different scenarios in which it is or is not taxable, but I know enough to now that it's nuanced, and is impacted both by whether or not you itemized deductions and how much SALT deduction you claimed (and I think whether or not you claimed sales or income tax in the SALT deduction).
That said, Amy C's response about "options" is helpful. The most confusing part is, I agree, how to actually enter it as a state tax credit. I think it's reasonable to hold on to it for a year and report next year. The reality is that the instructions are ambiguous. I will note: I'm thinking it may make sense to begin claiming state sales tax instead of income tax, as I think that would sidestep the taxability issue, even if you itemize.
