The way that your 2022 state tax refund affects your 2023 deduction for state tax is complicated, subtle, and hard to understand. I'll try my best to explain it. I'll get to line 19 of the State and Local Tax Deduction Worksheet in a few minutes.
You must have paid part of your 2022 state tax in 2023. Either you made a state estimated tax payment in January 2023, or you made a payment with a state extension in 2023, or both.
In 2023 you got a refund of part of the 2022 state tax that you paid. But you didn't pay all of the 2022 state tax in 2022. You paid part of it in 2023, as explained above. So part of the state refund that you received in 2023 was a refund of some of the state tax that you paid in 2023. Therefore, on your 2023 Schedule A you cannot deduct the full amount of state tax that you paid in 2023 because part of it was refunded. You can only deduct the net amount that you paid, after the refund.
TurboTax has to calculate how much of your 2022 state refund was a refund of 2022 state tax that you paid in 2023. It allocates the total 2022 state refund proportionally to the 2022 state tax that you paid in 2022 and the 2022 state tax that you paid in 2023. The amount that is apportioned to the payments made in 2023 is a refund of part of those payments, so it reduces the amount of state tax that you can deduct on your 2023 Schedule A. The amount of that reduction, the amount allocated to 2023, is what's on line 19 of the State and Local Tax Deduction Worksheet.
The calculation is done in Part I of the State and Local Income Tax Refund Worksheet. The line 19 amount that you are asking about comes from line 3 of the State and Local Income Tax Refund Worksheet. The calculation uses the totals on line 1 of that worksheet. The columns on that line are as follows.
(b) Your total 2022 state refund.
(c) The 2022 estimated tax payment that you made in 2023, if any.
(d) The payment that you made with an extension in 2023.
(e) The total of all of your 2022 state tax payments, in either year, including withholding, estimated tax payments, and payment with an extension.
(f) The portion of your 2022 state refund that is allocated to the 2022 estimated tax that you paid in January 2023. This calculated as ((c)/(e))*(b).
(g) The portion of your 2022 state refund that is allocated to the 2022 tax that you paid with an extension in 2023. This calculated as ((d)/(e))*(b).
The amount on line 3 is the sum of line 1 columns (f) and (g), as it says on line 3. This is the amount that goes to line 19 of the State and Local Tax Deduction Worksheet.
