That is correct. Only exempt interest on your Federal return from non-South Carolina sources would need to be added back in in the SC interview (except US obligations, which are not taxable in SC).
- Add-Back Rule: Interest on non-SC state and municipal bonds (often in Box 8 of 1099-INT or specific sections of 1099-DIV) is taxable in South Carolina.
- Mutual Funds: For bond funds, you must add back the percentage of income attributable to out-of-state, non-federal obligations.
- US Government Interest: Interest from federal obligations (e.g., U.S. Savings Bonds, Treasury Notes) is exempt from South Carolina tax. When entering this in TurboTax, you must specifically identify it as "U.S. Government Interest" to ensure it is not incorrectly added back.
- TurboTax Action: During the SC state interview, look for questions asking to identify the source of your tax-exempt income to ensure the correct add-backs or subtractions are made.
@Themushj
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