TurboTax not doing treasury interest correctly

[jcg]

I have Tbill interest which is taxed by the Feds, but tax exempt for the state. If I put the interest amount into 1099-Int box 1 and box 3, it is lowering my federal taxes but not the state. It should be the other way around when you put the amount into box 3, right?

There is also a box on the next screen that says "our state doesn't tax all this interest", but the pulldown menu doesn't have CA and all states should be in there as Tbill interest is tax free for all states.

Is TurboTax planning on fixing this?

[NCperson]

note that in TT, there is a note next to the title of Box 1 that says in the parentheses" not included in Box 3)

[jcg]

I'm not understanding what that reply means? The total is in box 1, so how would only putting everything in box 3 fix this bug? And the 1099 I got has the total amount in box 1, so I can't really change that.

[NCperson]

Please review page 3 of this link

https://www.irs.gov/pub/irs-pdf/i1099int.pdf

Look at the instructions for line 1..... the issuer of the form is supposed to only post on Line 1 what is not on Line 3

So TT is simply following the IRS approach

So either whatever institution issued the form to you did it incorrectly or you may want to go back and re-confirm the interest you received . If everything is in Box 1 any chance it is not T’bill interest?

There is no TT bug

[jcg]

OK so I double checked the 1009-INT and it is only in box 3. But when I make box 1 $0, and only put the interest in box 3, then BOTH the federal taxes AND the state taxes go down. Tbill interest is taxable on the federal so why is that tax now going down?

[NCperson]

1) please remove the 1099-INT statement from Turbo Tax 

2) what is the federal refund / tax due showing on the screen

3) what is the state refund / tax due showing on the screen

4) re-key in the 1099-INT form.  only input Box 3 and no where else

5) what is the federal refund / tax due showing on the screen.  The refund should now be lower (or the tax due should be higher)

6) what is the state refund  tax due showing on the screen.  There should be no change from step 3

are you using the online version or the CD / Download version ? 

[jcg]

Ok when I deleted the 1099-Int and reentered with just the amount in box 3, the fed tax owed went up and the state remained the same. So it's working correctly. Thanks for the help.

[1-for-you-19-for-me]

I think the problem is that TurboTax treats interest on Treasury bills (& T-bill funds), which is exempt from State taxation but is not exempt from Federal tax, as a "Connecticut Addition."  And it places that amount in Line 37 ("Other Additions").  But this interest is federally taxable and therefore that amount has already been taken into account in the calculation of Connecticut tax --- so it is not an addition.

[fanfare]

If you had it in box 1 and then zeroed it out, your federal tax is going to go down.