If you received the Arizona families tax rebate for the prior tax year, 2022 in this case, you would receive a 2023 form 1099-MISC reporting the amount you received. You need to report this on your federal return in TurboTax. It is in the Wages and Income section, then Other Common Income and then Income from Form 1099-MISC. The amount of your rebate is listed in box 3 on the Form 1099-MISC. While being taxable on your federal return, it is not taxable on your Arizona return, that may be why you are asked about it, as TurboTax may be requesting that number from you.
If you don't have the form, you may be able to download it by using this link to the Arizona Department of Revenue: AZ form 1099-MISC download
If this is not taxable income through the state, why does my AZ state refund amount decrease when I enter in
the information?
You enter the form in the federal section. It will be adjusted when you do the AZ state return. @Jen 2023
When I entered the information in under wages it adjusted both my Arizona and my federal refund amount. When everything was complete and did the final review it never adjusted that. If my calculations were correct it taxed me another $20 on my Arizona tax.