State tax exclusions

[cliffoehme2]

I have investments in American Funds, and some of the dividends are tax-exempt. They provide a 1099-DIV and provide two worksheets.  Here are the titles:

1. Federally tax-exempt income dividends: State tax exclusion worksheet

2. State tax exclusion for U.S. government income worksheet 

Only one mutual fund has a value in Box 12, the one with "tax-aware" in the title.

Both of them talk about state tax exclusions, and I am confused if they apply to federal tax or (Indiana) state tax.  And, of course, exactly how to enter those into TurboTax.

I have already downloaded the 1099-DIV from American Funds directly into TurboTax.

Can someone advise on how to handle these documents?

[DianeW777 · Accepted solution]

Yes. Enter your 1099-DIV as usual including the amount in Box 12, then continue to enter the requested information.

1. Do these uncommon situations apply? Select 'A portion of these dividends are from US Government interest'
2. Enter US Government interest - enter the amount from your statement
3. Tell us more about your exempt interest dividends - Select 'I earned exempt interest dividends in more than one state'
   1. Select your state from the dropdown and enter the amount for 'Your State' on your sheet.

Note: The reason for these selections is to show the amount that is exempt for your state.  TurboTax will carry this information to your state return. There is exempt interest dividends in your account for other states which will be considered taxable by your state.

                               

                             

                         

[cliffoehme2]

Thank you.  The first one I did went well (Growth & Income Portfolio) but TurboTax did not present me with "Tell us more about your exempt interest dividends".  It just returned me to the 1099-DIV screen.  I picked the next one which happened to be the Tax-Aware.... fund and went through the same process, but this time when I hit continue I did get the Tell us more screen.  I selected the "Multiple States" option and entered the Indiana number as well as GU, PR, VI numbers also.

As others have stated on the forum, it appears that TurboTax won't let you proceed unless the total of all the boxes on that screen is equal to the total entered for that fund on your 1099-DIV.  So, to make that happen I added another "state" called Multiple States and placed the remainder of (1099-DIV minus (IN, GU, PR, & VI)).

Does that seem like the right way to handle it?  Once I did that TurboTax was happy and returned me to the 1099-DIV screen to do the next fund.

[DianeW777]

Yes, you can handle it that way. The key is to be sure the amount that should be tax free for your state is accomplished.  The other states will provide the exact results that should take place on your resident state return.  

The IRS has specifications that must be met by TurboTax for e-file.

[cliffoehme2]

Hello, I'd like to ask a follow-up question.

I said previously that TurboTax won't let you go on from the "Tell us more about your exempt-interest dividends" page until all of the exclusions for the states you enter add up to the value on your 1099-DIV box 12.  I had only 1 state and 3 U.S. possessions called out on the worksheet from American Funds (IN, GU, PR, VI), so to make TurboTax happy I entered a "State" called Multiple States (XX) and entered the balance there.

But according to what I read about how Indiana and most other states treat federally tax-exempt dividends, they don't tax dividends from within the state or the US possessions but they do tax everything else.  So, I would expect to see my Multiple States value show up on my Indiana form, but I do not.

Am I reading this wrong somehow?

[cliffoehme2]

Seems like it should go on Indiana Schedule 1, line 3

[LenaH]

Generally, the total of your tax-exempt interest should go to Schedule 1, Line 3. However, there are exceptions. 

Per the IT-40 booklet, interest earned from obligations held or acquired before Jan. 1, 2012, isn't subject to Indiana income tax and shouldn't be reported as an add-back. Note. Interest earned from obligations of Puerto Rico, Guam, Virgin Islands, American Samoa, or Northern Mariana is not included in federal gross income and is exempt under federal law. There is no addback for interest earned on these obligations.

If this doesn't address your question, I would like to take a deeper look at this. However, I need a diagnostic file which is a copy of your tax return that has all of your personal information removed. You can send one to us by following the directions below:

TurboTax Online:

1. Sign into your online account.
2. Locate the Tax Tools on the left-hand side of the screen.
3. A drop-down will appear. Select Tools
4. On the pop-up screen, click on “Share my file with agent.”
5. This will generate a message that a diagnostic file gets sanitized and transmitted to us.
6. Please provide the Token Number that was generated in the response.

TurboTax Desktop/Download Versions:

1. Open your return.
2. Click the Online tab in the black bar across the top of TurboTax and select “Send Tax File to Agent” *
3. This will generate a message that a diagnostic copy will be created.  Click on OK and the tax file will be sanitized and transmitted to us.
4. Please provide the Token Number (including the dash) that was generated in the response.

*(If using a MAC, go to the menu at the top of the screen, select Help, then, “Send Tax File to Agent”)

@cliffoehme2 
 

[cliffoehme2]

OK, I will send a sanitized file.

You will see on my 1099-DIV for fund Tax-Aware Conservative Growth and Income in box 12 (exempt interest) there is a value of 2164.99. This breaks down into 106.95 which per American Funds is Indiana tax-exempt, and the balance of 2058.04 that is not tax exempt in the state.

On my Indiana IT-40 I put the 106.95 on Schedule 2 line 11a. There was not a way within Turbotax to also list the US possessions so I lumped that in with the Indiana exempt value. The taxable part of 2058.04 I entered on Schedule 1 line 3.

I would have thought that Turbotax would enter this stuff for me automatically on my Indiana return since it was all entered previously on my federal return. But, there you go.

[cliffoehme2]

Also, for the "tax-aware" fund it was initially funded in 2014, so the 2012 rule change you mentioned does not apply.

[cliffoehme2]

token number

[LenaH · Accepted solution]

Thank you for providing your token. I see the amount of out of state tax exempt interest being added back to your Indiana return correctly.

The $2,058 in out of state tax exempt interest, which you classified on the federal screens as Multiple States, is being added on Schedule 1, Line 3. This flows to Line 2 of your IT-40 form. As I stated in a previous post, the following amounts would not be an add-back due to the guidelines specified by the state of Indiana:

• Indiana
• Guam
• Puerto Rico
• Virgin Islands

Therefore, do not deduct $107 on Schedule 2 because it is not being included as taxable to the state. Line 1 of your IT-40 represents the amount of federal AGI, which does not include any of the $2,165. From there, only $2,065 is being added back. There is no reason to deduct an amount that is not part of your taxable income. 

I have added screenshots below for further clarification. If you have any other questions, please reply in the thread and tag me so I am notified promptly. 

Schedule 1:

IT-40:

@cliffoehme2 

[cliffoehme2]

Thank you!  You have been most helpful.

I have made the edits (just deleted the 107 from Schedule 2).  Left Schedule 1 as is.

Sorry, I forgot the token until I reread your post.  Also, I didn't know about tagging you but I do now.

@LenaH 

[cliffoehme2]

American Funds provides a worksheet called State Tax Exclusions for U.S. Government Income. You enter your numbers from box 1a of your 1099-DIV and it multiplies those by US government exclusion factors to give you "your total state tax exclusion" amount.  I included an image of this form elsewhere in this string.

For 2024 my exclusion was $3459.  I have shown this exclusion amount on Indiana Schedule 2 line 4. Is that correct?

@LenaH 

[LenaH · Accepted solution]

Yes. The $3,459 is the amount of US government interest included in Box 1a of your 1099-DIV forms. This total flows to Schedule 2, Line 4 automatically. 

@cliffoehme2