Here is the wording in Pub 525:
State tax refund. If you received a state or local income tax refund (or credit or offset) in 2022, you must generally include it in income if you deducted the tax in an earlier year.
If you use the standard deduction in 2022 then you did not deduct it and it gave you no benefit to your taxes. Therefore you do not have to claim it as income. The state is just returning your money that you over paid in taxes. If you itemize, the software will figure out what benefit you got in reduction to your taxes. That is what you will have to pay.
Unfortunately Turbo Tax has no easy way to handle this in 2022 at this time. If you put it in as a 1099-MISC, it will show it as income for both federal and state tax. It should have been issued as a 1099-G. Turbo Tax would then ask you if you itemized or took the standard deduction and do the correct action (no tax for standard deduction, tax based on how you benefitted from the deduction if you itemize).
Stay tuned for how this gets resolved.
