MD Additions and Subtractions on Form 502 are incorrect/no Form 502SU attached/no supporting worksheet

Forum|Forum|2 months ago
April 13, 2026
1 reply
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(Duplicate post because it ended up in Retirement and I don't know how to change the Topic. I will try to delete the first posting. I am using TurboTax Deluxe Desktop on Macintosh)

HELP! Sat down to review/confirm numbers entered for our Federal and Maryland returns, especially concerning handling of US/US territories handling of interest on Federal vs Maryland returns.

The MD 502 is missing addition of tax exempt dividends (line 2) and while there is an entry on line 13 for subtractions from form 502SU, (a) I cannot validate the number, (b) the printed draft return + worksheets does not have form 502SU even though it should be attached, (c) there is no worksheet supporting this entry in either the printed return + worksheets or when reviewing the MD forms in my TurboTax file.

Exempt-Interest Dividends (aka interest) from 1040 line 2a should have been reported as a MD addition. The subtractions on form 502SU should include the portion of tax exempt interest that was earned in MD and US territories + interest earned on the Treasury note. The 1099-DIV and 1099-INT forms were imported to TurboTax from the financial institution. The Treasury note interest was correctly reported in box 3. The portion of Exempt-Interest Dividends earned in MD and various US territories was entered through the TurboTax interview process and shows in the corresponding Form 1099-DIV worksheet.

I am also unclear about TurboTax handling of Accrued Market Discount on Treasury note redemption at maturity. The AMD was subtracted as an adjustment on form 8949 (Sales and Other Disposition of Capital Assets), added in the interest section of Schedule B, then subtracted as Accrued Interest from the subtotal of all sources of interest. Is this correct? And if not correct and the AMD amount should be taxed, is that an additional subtraction to MD income?

Thanks in advance for help with these questions, Sciemom

MelindaS1

Level 6

To fix the problem with your Maryland tax return and exempt-interest dividend additions, follow these navigational steps in TurboTax Desktop:

Select Forms (upper right)
Forms in My Return (left)
Under Schedule B select 1099-DIV (Brokerage Name)
Scroll down to the Box 12 Exempt-interest dividends table (see below sample)
Verify or adjust your state-source allocation of exempt-interest dividends on the resident and nonresident state rows, reflected in columns (b) and (c), totaling back to Box 12 - see below
In the box for "State where the dividends were earned." Postal Code, enter XX
Select Errors to verify your entries

It should then flow correctly to the Form 502 additions and subtractions.

Yes, some accrued market discount should be reported as interest on your tax return. You can use this worksheet from the IRS Form 8949 instructions to figure your adjustment:

In my opinion, interest from the Accrued Market Discount adjustment of a U.S. Treasury bond redemption should not be taxable at the state level. State Admin Release #13 Part II C seems to read clear that profit of all kind is untaxable by the state on United States obligations. Accrued Market Discount not expressly addressed in most state income tax codes (see discussion), and so you should apply your own understanding of your investment details when deciding on the tax treatment.
Further discussion.

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