Assuming this was from dividends reported to you on Form 1099-DIV, the exempt-interest dividends should have been reported in Box 11. This exempts them from federal tax.
If the exempt-interest dividends are sourced from your state or one of the U.S. territories like Puerto Rico or Guam, then they are also exempt from taxation in your state. You will have to report from which states the dividends are sourced. That information should be included with the tax information from the brokerage. To report it in TurboTax:
- In the Federal > Wages & Income > Interest and Dividends section click Start/Revisit next to Dividends on 1099-DIV
- Import or enter the 1099-DIV manually. Make sure to click My form has info in other boxes if there is an amount in Box 11
- Answer Tell us if any of these uncommon situations apply to you
- On the Tell us more about your exempt-interest dividends you may select the state. If the dividends are exclusively from your state, the entire amount is exempt from state and federal taxation. Select your state in the dropdown menu under I earned exempt-interest dividends in only one state. If the dividends are from multiple states, only the interest earned within your state or from U.S. territories are exempt from state tax. You may enter each of those separately in I earned exempt-interest dividends in more than one state and list the remaining states using Multiple States.
