Fidelity Investment technical staff have confirmed that there is a problem with Turbotax handling of tax-free dividends on the state return when it is imported from Fidelity. The problem is known to occur in Maryland returns where all tax free income was treated as MD tax free which can significantly understate the Maryland tax liability. I don't know if the problem extends to other non-taxable Maryland income, such as national municipal interest or interest from US Government and agency securities which are not taxable in Maryland. Fidelity has reached out to Turbotax.
To correct, delete the imported tax-free income that was imported from Fidelity and enter the information manually.
To date, Trubotax has not responded. I would appreciate a response from TurboTax.
