Why is my state refund being taxed?

[cjzimmer2]

Every year I file itemized and every year I get refund.  Each year when I fill out this portion, Turbo Tax asks me if I want to recalculate to determine if the previous year's state refund is taxable.  Each year, I have to open the previous year's version, enter a few numbers, enter some numbers into the current year's turbo tax and then it tells me my state refund is not taxable.  This year, it's just automatically telling me it's all taxable without even giving me a chance to recalculate it.  Did Turbo Tax change this portion of the program?  My financial status hasn't really changed much from previous years so I find it very suspect that ALL of my state refund is suddenly taxable.

[Mike9241]

see page 23 of PUB 525. if applicable use worksheet 2 (page 27) to compute the taxable portion of your refund.

https://www.irs.gov/pub/irs-pdf/p525.pdf 

[AmyC]

Each year, the possibility must be determined based on income and limitations to state and local taxes on your return. If you are claiming state tax paid in your itemized deductions and then some of that deduction is paid back to you, the program has to see if that amount was useful in reducing your tax bill. If so, then it is added back in the year you received the income, see About Schedule A (Form 1040), Itemized Deductions - IRS for state and local tax deductions. If you deduct sales tax, that would not be a refund and would not be taxable on your next year's return.

For full info see 2021 Publication 525 - Internal Revenue Service, page 23

@Mike9241 correct answer just popped. This time delay!