Why is TurboTax counting my 2017 Fed Return Refund as "additional" income in Schedule 1 line 10? Seems like double taxation to me. Trying to understand.

[HelenaC · Accepted solution]

You deducted, on Schedule A, Itemized Deductions, your gross state income taxes on your 2017 income tax return. When you did your state income tax return, you got a refund. Your Itemized Deduction (gross state income taxes) were therefore over stated by the refund amount so now it's taxable. The federal government is correcting your 2017 overstatement by now making you include it income. 

If all three of the following are true, your refund counts as taxable income:

• You itemized deductions last year, instead of taking the standard deduction.
• You claimed state and local income taxes (not general sales taxes).
• Claiming the deduction helped you increase your federal refund or lower your tax bill.

Even when your refund is taxable, it may not be the entire amount. It depends on how much the deduction affected your refund or tax bill. Just answer a few simple questions about last year’s refund, and we’ll calculate the taxable amount for you.

Related Information:

• Where do I enter a 1099-G for a state or local tax refund?
• Where do I find last year's state/local refund so I can report it on this year's taxes?
• How do I report last year's state or local refund without a 1099-G?
• Did I itemize last year?
• Which deduction should I choose, state and local income tax or sales tax?