Turbotax incorrectly includes state income tax refunds as income when refunded the following year. Not correct if no tax benefit when paid, e.g. if stand. ded. taken?

See Tax Benefit Rule. Refund is not income if no benefit was obtained when tax was paid, e.g. if stand. ded. taken, not itemized deducts. Right?

307

Level 15

Mar 14, 2021 11:42:34 AM

TT handles this correctly, assuming you transferred your 2019 info into the 2020 program. Otherwise, TT asks if you took the Standard deduction for 2019.

Are State Tax Refunds Taxable? | The TurboTax Blog (intuit.com)

New Member

Mar 17, 2021 10:51:43 AM

Thanks! Yes, I agree that TT takes us to the right result. I just found it confusing when the initial entry seemed to assume a state income tax refund would be taxable. I had a similar concern when TT allowed me to complete my return without asking if I had made estimated tax payments, which I had. Not a biggie to circle back and enter the tax payments, but a moment of concern when realizing something is wrong. Good result in the end, and TT did indeed identify applicable tax benefits of which I was unaware! (Recovery relief tax credit!) So thanks, TT and SweetieJean!

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Turbotax incorrectly includes state income tax refunds as income when refunded the following year. Not correct if no tax benefit when paid, e.g. if stand. ded. taken?