Refund from Amended 2020 State tax return received in 2022 - Taxable or not in 2022? TT error?

[jim-erickson]

I amended a state tax return for the 2020 tax year in 2022 and received a refund of $256 in tax year 2022.  I took the standard deduction in Federal 2020 taxes so it is my understanding that this should not be counted as Federal Income in 2022.  However, when I entered the $256 refund in TurboTax (and identified it as from the 2020 tax year in the drop down menu), TurboTax Premier tagged it as taxable income.  TurboTax asked if I took the Standard deduction in 2021, but didn't ask anything about 2020.   TurboTax is recommending that I take the standard deduction again in 2022, but it is still counting the refund from the amended 2020 return as taxable income.

Is this refund really taxable income or is TurboTax counting it as taxable income in error?

Jim

[jim-erickson]

That should have TurboTax Premium Windows, not online.

[efg4]

This seems to me to be an error.  The only way a refund would be taxable is if it affected the tax you owed in the year you originally filed the return.  Since you took the standard deduction in 2020, you did not deduct any state income tax paid in 2020; therefore, it would not have affected the tax you owed for 2020.  So the refund you received in 2022 is not taxable.

[jim-erickson]

That is also how I read the IRS rules but wanted to get someone else's opinion in case I am missing something.  I am probably just going to delete the entry from TurboTax and not worry about it.  Does Intuit (TurboTax) development have someone monitoring this forums or is there some other way for me to report this if it is truly an error.

[ThomasM125 · Accepted solution]

The refund will not be taxable if you took the standard deduction in the year it applies to. You should not report the refund on your tax return for the year you received it. I will report the issue to our quality assurance department.