To enter the tax-exempt amount in TurboTax online program, here are the steps:
1. Report your full income under the appropriate section. Then enter the treaty-exempt amount as negative amount (e.g. -5000) under Federal Taxes / Less Common Income / Miscellaneous Income 1099A, 1099C / Other Reportable Income
2. Download and fill in a Form 8833 to claim an exception. https://www.irs.gov/pub/irs-pdf/f8833.pdf
3. You cannot e-file. You can still use the TurboTax program to prepare your tax forms, but you need to print them out and submit them to IRS by mail along with Form 8833.
Most of the states do honor the federal tax treaties. Those that do not include 1) Alabama, 2) Arkansas, 3) California, 4) Connecticut, 5) Hawaii, 6) Kansas, 7) Kentucky, 😎 Maryland, 9) Mississippi, 10) Montana, 11) New Jersey, 12) North Dakota, and 13) Pennsylvania. If you live or work in one of these states, you will likely owe state income tax even though your income is exempt from federal income tax by a treaty. Please contact your state for further clarification.
