I received state tax refunds from 2 different states A and B.
1) State A refund was issued in 2021 for 2020 tax return and Turbotax software asked if I did standard deduction (yes) and the worksheet accurately shows that is as non taxable. No problem here
2) State B refund was also issued in 2021 but for 2019 and a prior year tax return; one of the year corresponded to a standard deduction and the other year to an itemized deduction. Surprisingly for these 2019/prior year tax refunds, the software never asked if standard deduction applied or not, and the worksheet shows that it is all being automatically considered taxable.
How do I fix this? a) Simply delete all the tax refunds entries which I know are not taxable because of standard deduction and include only the one for which itemized deduction applies? Will this in any way affect my state refund I will start after completing the federal since the software pulls the same info into the state return? b)is there another solution, or c) have I misunderstood the rule about taxable state refund of prior tax years? Many thanks!
