Why are my tax exempt dividends in box 10 of DIV 1099 decreasing my refund amount?

[don-swords]

when I input my tax exempt dividends from box 10 of my DIV 1099. Turbo Tax decreases my refund amount. If they are tax exempt, why does this happen?

[MR_ED · Accepted solution]

A great question. Many people ask the question: Why do we even have to show tax exempt income on a tax return if it's not taxable? While tax exempt income does not increase your AGI (Adjusted Gross Income), it does increase your MAGI, (Modified Adjusted Gross Income). You may want to Goggle (MAGI) since it it used many places to limit certain deductions and credits. One example is that it can increase the amount of taxable SS income that is taxable. There are many places that use the MAGI number and I think that this is why your refund went down when you put in the exempt income.

[don-swords]

Thank you Mr. Ed. Your answer was very helpful. I see now that it would have an effect on my SSI taxable income.