Part of my state tax refunds for 2020 is taxable by my TurboTax always says not taxable

[tax_idiot_yang]

My state/local income tax refunds for 2020 is 1,535,  and the state taxes I paid for 2020 is 11,079, which exceeds the limit of 10,000 for itemized deduction so I chose to deduct 10,000 for my federal return.  However after the refund the actual payment I made is just 9,544, which means 10,000-9544 = 456 should be taxable income for 2021. I was a F1 student in 2020 so there is no way I could have use standard deduction. (See the pic for my worksheet 2020 tax return)

The issue I'm facing is that my TurboTax 2021 is always saying my 2020 refund is not taxable. I follow all the instructions the pic below is the information I put in.  I don't know the logic in the underlying system but it just looked no right to me.  Appreciate if anyone can help me out. Thank you!

[JulieS]

I tired to reproduce this, but as I did, I can't help but wonder why you entered $10,000 as your total itemized or standard deduction.

The standard deduction for 2020 was $12,400, so it only makes sense your total itemized deductions would be at least a little more than that. 

I think TurboTax assumed that the amount was not taxable because you could have deducted $12,400 instead. 

[tax_idiot_yang]

Thanks for responding! I couldn't use standard deduction last year because I was NRA.  TurboTax asked me if I had to itemize my deduction in 2020 and I assume the software should realize that case.

[tax_idiot_yang]

Is there a way I can manually correct it on the generated form?

[FangxiaL]

If you were an international student on an F1 visa, in the U.S. for less than 5 years, you should not have used TurboTax to prepare your 2020 tax return. 1040-NR would be the correct tax form for you for 2020. You can only itemize the deductions, standard deduction is not available to nonresidents. TurboTax does not support 1040-NR.

@tax_idiot_yang
 

[tax_idiot_yang]

Yeah. I was not using TurboTax to do 2020 tax return. My CPA did. I was on H1B visa for 2021 so I'm using TurboTax now. Isn't that right? @FangxiaL

[tax_idiot_yang]

I think you are right. TurboTax is assuming I could have use standard deduction see 7d. I wonder if I can manually override 7d to be 9544, which I think will fix this issue. 

[tax_idiot_yang]

If no, it seems to be a bug in the underlying system. What is the impact of this question then?

[Vanessa A]

Answering yes to that question should cause your state refund to be counted as taxable income.  That is the "override" to the assumption that you took the standard deduction if your itemized deductions were less than your standard deduction. 

[tax_idiot_yang]

Hi Vanessa @Vanessa A , 

Thanks for responding. I answered yes but it's still saying the state tax refund is not taxable. 

How can I fix it?

Thanks

[Vanessa A]

Going back to your F-1 visa...are you a resident or nonresident alien for 2021? 

[tax_idiot_yang]

I was non-resident-alien so there is no way I could have used standard deduction. The problem here is that question (if I was required to do itemized deduction) seems to have no impact on the computation.......the underlying system always thinks I can use standard deduction...

[RobertB4444]

@tax_idiot_yang  Please clarify - TurboTax is telling you that your state refund from last year is taxable even though you did not itemize?  Does it have you itemizing this year?

[tax_idiot_yang]

@RobertB4444  Hi, 

No,
1. I did itemized last year and I had to since I was NRA and on F1 student visa.

2. I benefited from the state refund since I deducted 10,000 last year while my actual tax payments after refund was just 9544, so the 456 difference should be taxable

3. TurboTax asked if I had to itemized my deduction last year and I answered YES

After all these, TurboTax still thinks I could have used standard deduction last year (See the screenshot of the worksheet I posted above) and told me it was not taxable, which is wrong, obviously.

Really I just wanted this to be fixed or get refunded so I can ask a CPA to do it for me. If there is no way this simple issue can be fixed.... I would be surprised.

Thanks.

[MarilynG]

There is a screen in the TurboTax interview after entering your 1099-G State Refund where you can indicate you want to make it taxable in 2021.