Turbotax assumes state withholding; why?

Forum|Forum|4 years ago
February 2, 2022
2 replies
16 views

Last year i received a state tax refund of $147. In the step-by-step walkthrough, turbotax tells me that since i itemized last year (for tax year 2020), that refund is not federally taxable. But somehow that $147 amount now shows up on my state return as 'state withholding' - and there is no mechanism which permits me to take that out of the state form .

LenaH

Alumni - Expert

No. If you itemize your state taxes, then your refunds are federally taxable in the following year.

Specifically, if all three of the following are true, your refund counts as taxable income:

You itemized deductions last year, instead of taking the standard deduction
You claimed state and local income taxes (not general sales taxes)
Claiming the deduction helped you increase your federal refund or lower your tax bill

Lastly, where is the $147 being shown on your state return? States will usually subtract the state refund from federal taxable income so it is not taxed at the state level.

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