Why do I need to report previous year's state tax refund as income if I didn't itemize deductions last year?

[mbk33]

On the page for entering income, in the section "1099-MISC and Other Common Income", TurboTax has entered my Massachusetts state tax refund from 2021. However, the "Learn More" explanation contains the following language:

State and local income tax refunds may be taxable in the year you received them if all of the following occurred:

- You got an itemized deduction for state and local income tax in the prior year.
- You received a benefit from taking the deduction. For example, the deduction increased your federal refund or reduced your tax liability.
- You received a state or local refund, even if you didn't receive a 1099-G.

Your state and local income tax refunds are not taxable if any of the following apply:

- You took the standard deduction in the prior year (you did not itemize your deductions).
- You had negative taxable income (your deductions exceeded your adjusted gross income).
- You itemized deductions, and elected to deduct state and local general sales tax instead of state and local income taxes.

I took the standard deduction, so why has TurboTax included it here? Should I delete this entry?

Thanks

[bluedeb · Accepted solution]

TurboTax may enter the amount of your State refund but since you did not itemize you will not be tax on the amount.  TurboTax has you enter the amount to see if it is taxable or not.  You don't have to delete the entry, since you are not being taxed on it.

[JulieS]

Yes, you are correct that your state refund isn't taxable if you didn't itemize last year. The easiest solution isn't to delete the refund amount, it is to just answer the question about whether your itemized. 

1. Select Federal on the left side menu.
2. Select Wages & Income.
3. Scroll down the list and find the section called, Other Common Income.
4. Expand the section and find Refunds Received for State/Local Tax Returns, click Start or Update to the right.
5. Click Done in the lower right corner. 
6. Select I took the standard deduction in 2021 and click Continue.