Deductions & credits

It may not be wrong, but it's unclear why you think none of it would be taxable since you did itemize your deductions in 2022. The fact that you paid state tax, unless it was a balance due paid in 2023 for your 2022 tax return, would indicate it should be taxable, or at least partially taxable. Based on your confidence that it should not be included you can simply leave it off of your tax return and keep the form in your file with notes.  

This is considered the 'Tax Benefit Rule' and you can review the information in IRS Publication 525. The basics are that if you received no tax benefit then the income is not taxable.

TurboTax has handled this accurately.

1. Open your TurboTax Online or TurboTax Desktop return > Income
2. Scroll to 'Other Common Income' > Select Refunds Received for State/Local Tax Returns > Start/Revisit/Update
3. Continue to enter your information > Enter zero for a total of all state tax payments for your 2022 tax year
4. Select 2022 as Tax Year of Refund (usually 2023) > Enter zero in the following screen since you already included it
5. Finish your tax return to see if it was included.

If you have the same experience, please update here and we will help.

From the left rail menu in TurboTax Online, select Tax Tools (You may have to scroll down on the left rail menu.)

1. Select Tax Tools
2. On the drop-down select Tools
3. On the pop-up menu titled “Tools Center”, select View Tax Summary 
4. On the left sidebar, select Preview my 1040 

For TurboTax Desktop, change to 'Forms' and review the forms