In 2022, Allison received a refund from the Franchise Tax Board for the amount of state tax that she overpaid in 2021. She was able to reduce her 2021 federal tax liability by itemizing and claiming a deduction for state and local income taxes paid that year. Allison may need to report all or part of the state tax refund that she received in 2022. If so, how will it be reported on Allison's California return?
As a nonrefundable credit on both the federal and California returns.
As a refundable credit on the federal return and an adjustment on the California return.
As taxable income on the California return and an adjustment to income on the federal return.
As taxable income on the federal return and an adjustment to income on the California return.