First, TurboTax automatically calculates the state income number from the income on the W-2 documents entered. They are going to be included regardless but the total for the State and Local Taxes are limited to $10,000. As far as next year's return, what you enter here does not impact next year's taxes. The only impact they will have on next year's taxes is if you are able to itemize. If you are able to itemize, then next year the state refund related to the state income tax will be considered income.
The state refund is only taxable if you are able to itemize this year. State refunds are partially taxable if you itemized your deductions last year exceeded your standard deduction by less than the amount of the refund. If you take the standard deduction, then the state refund is not taxable.
