My Federal marginal tax rate is 22%. My State marginal tax rate is 4.5%
If I opt for Federal Standard Deduction, I will pay $484 less in Federal, but $688.50 more in state taxes. So it creates an incentive to itemize even though I'm itemizing less than the Federal standard deduction.
Assuming I increase my state withholdings, my Federal itemized deductions would increase to above the standard deduction. Now I'm leaving nothing on the table. However, let's assume I receive it all back from the state in the form of a state tax refund.
I will receive a 1099G which could become taxable income at the federal level since I itemized. When I file in 2028, TurboTax will need to complete the "State and Local Income Tax Refund Worksheet" (apologies called it the 1099G worksheet). This worksheet appears to give you the benefit of the standard deduction (line 7C & 7D in 2025) in case your state tax return brings you below that level.
I assume there are a lot of people who accidently itemize including their state income taxes on the federal, get a refund, and in effect take the standard deduction after they complete the "State and Local Income Tax Refund Worksheet"?
