State tax filing

I walked back through my steps in TurboTax Premier online (using Chrome as my browser) and was able to see the 2.5% correctly applied.  I'm going to break down the steps I followed exactly. You may have some questions that populate in between the ones that I list.

Before you start your CA return over yet again, I do want you to check to see if the form 8305P is showing in your list of forms.  To do that log in and continue your return.  Once you are working in the return you will see a menu on the left with Tax Tools near the bottom. Cick on Tax Tools and then Tools.  On the screen that pops up, select "Delete a Form".  The forms that are in the return will then populate in a list.  Scroll down to the California section and see if you see Form 3805P, TP (it could also say SP in place of TP, either is fine).  

If you do not see it, I recommend clearing browser cache and cookies before starting over.  The shortcut to get to that option in Chrome is Ctrl+Shift+Del. 

These are the steps that I took to get the program to add the form and the additional tax on the earnings:

First, verify that the 1098-Q is entered as follows in the federal section of the program:

• From the Deductions & Credits menu click Edit/Add beside ESA and 529 Qualified Tuition Programs (Form 1099-Q)
• On the first page you should see Yes for the question "Did you receive a Form 1099-Q..."
• Once you continue you should see the 1099-Q Summary page.  Click Edit here.
• Click through the screens indicating you are the recipient and someone else is a beneficiary.  
• Click on your grandson's name and click Select
• Continue to the 1099-Q entry page.  Verify that you have numbers in the Gross Distribution, Earnings, and Basis boxes and that the Distribution Code is 1
• Continue through the rest of this section until you are back to the summary page and then click Done

Now begin the California return.  Here are the steps I took inside CA return:

• When you get to the screen Here's the income California taxes differently scroll down to Miscellaneous and click Start beside Expanded 529 Fund Amounts
• Enter the earnings only in the box beside Expanded 529 Fund Amounts

Note if you'd like, you can try editing the return for this data before clearing it to start over again you may (especially if you feel like you haven't seen the section described above yet).  

Here is a screenshot of what's before and after the 529 entry area for reference (it's quite a long list of things California handles differently - and they're not in any particular order).

If this still doesn't work, I would recommend moving to the desktop product where you can see the forms and directly enter the data as needed.  We can assist you with transferring your tax data entered already to that program in order to avoid having to start over.  Just reply back if you need those directions or information about the downloadable desktop product.