My federal itemized deduction for state taxes is showing up as taxes withheld, and does not factor in my calculated 2020 state tax refund, is this expected?

[VolvoGirl]

Why do you expect a refund to be a deduction?  Actually a state refund you got in 2020 for 2019 or a prior year may be taxable.  Did you enter the 1099G for it?  

[KathrynG3]

Yes, this is expected. The current state income taxes withheld pertains to 2020. The refund would be for 2019 and the amount withheld in full would have already been captured for 2019.

The 2019 state tax refund is potentially taxable based on whether the deductions were itemized for the 2019 tax return and to what extent these deductions exceed the standard deduction alternative.

TurboTax will include it to the extent required by the IRS. Any taxable amount will be seen on Schedule 1, Part 1, Line 1 which will then be part of the total for Schedule 1 Line 9 posted to Form 1040 Line 8.

For more information, see: Are State Tax Refunds Taxable? | The TurboTax Blog

[waltonwang]

Thank you for taking a look at this!

The state tax refund I was referring to is my 2020 state tax refund. My 2020 federal itemized deduction includes my 2020 state tax withheld, it does not incorporate my expected 2020 state tax refund.

Does this change things? Are you saying that I should just include my 2020 state tax refund as taxable income in my 2021 federal tax return?

[waltonwang]

Apologies for the confusion, I have updated the title. I was referring to my 2020 tax refund instead of my 2019 tax refund.

[VolvoGirl]

Right the current state refund does not figure into it  We are doing 2020 returns, so the state tax deduction would be anything you actually paid in 2020 like state withholding, a tax due for your 2019 return, any state estimates you paid, any local tax like SDI or VPDI in boxes 14 & 19 on your W2.  

The 2020 state refund you will get now in 2021 will be income on your 2021 federal return next year.....if you are able to itemized deductions on your 2020 federal return and took the state tax deduction instead of the Sales Tax deduction.   Do you have enough deductions to itemize?  Since the Standard Deduction has increased more people are taking the Standard Deduction.  

For 2020 the standard deduction amounts are:

Single 12,400 + 1,650 for 65 and over or blind (14,050)

HOH 18,650 + 1,650 for 65 and over or blind

Joint 24,800 + 1,300 for each 65 and over or blind

Married filing Separate 12,400 + 1,300 for 65 and over or blind