New York State refund being treated as taxable income in TurboTax when I know it shouldn't be - details inside

[f404]

Hi Pros!

I'm doing my 2023 taxes now, so I logged into the IRS website to check my "Wage & Income Transcript" and I see that New York State has reported a 1099-G for year 2019 for the amount of $5,000. This $5,000 was paid as "estimated taxes" and I ended up owing nothing to NYS, so they refunded me the full amount of $5,000.

Am I correct in thinking that this $5,000 should not be considered as taxable income? If so, how do I prevent TurboTax from treating it as taxable income in the "state refund section"?

Thank you!

[LenaH · Accepted solution]

State refunds are only taxable in the year received if you deducted them in a prior year as an itemized deduction on Schedule A. 

If you did not itemize, you can enter $0 as the taxable amount of your refund. To do so, please follow the instructions below:

1. Open your return.
2. Click on Federal on the left hand side.
3. Click on Wages & Income.
4. Under Other Common Income, click Start next to Refunds Received for State/Local Tax Returns.
5. Answer yes to the question Any state or local income tax refunds?
6. Answer the questions on the following two screens.
7. Click Done on the State and local tax refund summary screen.
8. On the Refunds From Years Prior to 2023 screen, enter $0 in the Taxable Amount box if you did not itemize your deductions for tax year 2019.

[f404]

thank you so much for confirmation!!

I did, in fact, itemize my deductions in 2019 and included that amount in the deduction, so the refund I received from NYS in 2023 for that overpayment is in fact taxable.