Why is 2021 state income tax refund received in 2023 taxable on 2023 federal return even though I always take the standard deduction

Report the form and TurboTax will figure out if it is taxable or not.  If the refund shows as taxable, you may have entered a question incorrectly.  

 

Your refund counts as taxable income if the following three statements are true:

 

• 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.

Even when your refund is taxable, it may not be the entire amount. It depends on how much the deduction affected your refund or tax bill. Just answer a few simple questions about last year’s refund, and we’ll calculate the taxable amount for you.

 

Where do I enter a 1099-G for a state or local tax refund?

The entire amount of the 2021 state income tax refund is listed on line 8 on Form 1040 as Additional income form Schedule 1, line 10.

Delete the 1099G for the state refund.  If you took the Standard Deduction that year it is not taxable and you don't even need to enter it.