Yes if you itemized in 2020 and had a state refund, it is income in 2021 even if the state applied it to back taxes. If you itemize in 2021. you can include the back taxes paid as a deduction (just be sure to enter the actual tax paid, not any penalties or interest.)
But what if I used the standardized deduction instead of itemized?
if you used the Standard Deduction in 2020, you can enter the amount of the State Refund you were supposed to get.
It is not taxable and won't affect your 2021 refund.
But the state took my taxes to pay for a past due balance. So is it still considered income even though I never received it?
Yes---it was income----it was used to pay a debt that YOU owed. But it only affects you if you itemized last year. If you used your standard deduction it makes no difference.
Thank you. Now I wonder why TruboTax is counting it as income... I always use the standard deduction.
TT asks if you received a state refund. If you also answer correctly that you did not itemize deductions for that tax year, TT will not add it to your taxable income. You will not be taxed on it.
I did answer correctly that I don't itemize (I ALWAYS use the standard deduction) but it's still showing as income and I don't know where to go to correct whatever is wrong.
Phone support is not provided with the Free Edition. If you are using a paid version of the software or if you purchased PLUS you can get phone support when customer support is there. Otherwise, post your question here and someone will try to help.
To call TurboTax customer support
https://ttlc.intuit.com/questions/1899263-what-is-the-turbotax-phone-number
Customer support is available from 5 a.m. to 9 p.m. Pacific time daily