Typically, interest from corporate bonds or banks will be in Box 1 of Form 1099-INT, interest from U.S. Treasuries will be in Box 3, and tax-exempt interest from muni bonds will be in Box 8. Even if you don't have to pay income tax on the interest, you still need to include it on your Federal tax return. U.S. Treasury bonds are exempt from state and local income taxes but are taxable at the federal level.
- Box 1 of the 1099-INT reports all taxable interest you receive, such as your earnings from a savings account.
- Box 2 reports interest penalties you were charged for withdrawing money from an account before the maturity date.
- Box 3 reports interest earned on U.S. savings bonds or Treasury notes, bills or bonds.
- Box 4 reports any federal tax withheld on your interest income by the payer.
- Box 8 reports tax-exempt interest and relates to interest-bearing investments you hold with state and local governments, such as municipal bonds.
If you need to enter adjustments to interest income reported on Form 1099-INT, look for the follow-up screen "Do any of these uncommon situations apply?" and choose "I need to adjust the interest reported on my form". On the following screen, enter any subtraction and select a reason for the adjustment from the drop-down menu.
When you complete a state interview in TurboTax, you are asked a series of questions about any items that need to be treated differently or allocated among different states, and you will see the Box 3 amount listed as a subtraction from state income. You don't have to do anything unless you need to allocate the subtraction amount among different states.
See this TurboTax tips article and this one on investment bonds for more information.
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