Is there a problem with the computation of whether my state refund is taxable? I know mine is not, but TurboTax is claiming it is.

[dtorbert]

Page 85 of the instructions for form 1040 has the worksheet for figuring whether your state/local  tax refund is taxable.  Cliff Notes version: you can only deduct $10K in SALT taxes and so if you would have hit that anyway even with your refund, it's not taxable.  So I know that mine is not taxable, yet TurboTax is still adding it to my income on my generated 1040.

[ThomasM125]

You are correct in that if you did not benefit on your federal tax return by deducting your state taxes that were later refunded, then they would not be taxable on your federal return in the following year.

TurboTax should have asked you questions to determine if your refund is taxable. It may be advantageous to go back through that routine to make sure you answered the questions accurately. 

If you are sure your refund is not taxable, you can choose not to enter it as taxable in your TurboTax program.