Incorrect calculation - Social security benefits worksheet line 3 includes the excluded interest from EE bonds (sch B, line3), which is incorrect. Shouldn't it only include 1040 line 2b?

[tsaiclops]

When I click on "data source" for the social security benefits worksheet line 3, the amounts listed seems correct.  It doesn't include the excluded interest from EE bond.  However, this doesn't add up to the calculated amount on line 3 the amount turbotax puts in line 3 includes the excluded interest - so I think there is a calculation bug in turbotax.  Can you confirm and provide a fix?

[BillM223]

I don't see an error. TurboTax is using a variation of a worksheet found in the 1040 Instructions (page 32) - "Social Security Benefits Worksheet—Lines 6a and 6b".

In the IRS worksheet, line 3 is a collection of taxable items (not including line 2a of the 1040), but line 4 on the worksheet refers to line 2a of the 1040...and as you see, line 5 is the sum of lines 2, 3, and 4.

The TurboTax worksheet saves a step by including 2a in line 3 of the TurboTax Social Security Benefits Worksheet. The result is the same in either case.

Why did the IRS break out line 2a (1040) on to a separate line? I presume because they wanted to separate non-taxable line 2a from all the taxable items.

[tsaiclops]

Thank you for your prompt response.  However, the EE Bond excludable interest, which is listed on schedule B, line 3, is not the same as tax-exempt interest, which on Box 8 of 1099-INT.  Therefore, I don't have any value in line 2a of 1040 as tax-exempt interest.

So as an example, what I have is:

line 2 of schedule b: 3000

line 3 of schedule b: 1000

line 4 of schedule b: 2000

line 2a of 1040: 0

line 2b of 1040: 2000

line 3 of social security worksheet: 3000 (should be 2000)

line 4 of social security worksheet: 0

[BillM223]

"the calculated amount on line 3 the amount turbotax puts in line 3 includes the excluded interest " - I think I must have assumed you meant a line 3 on a different form than what I thought. 

Let me restate this:

on your example

$3,000 is the total interest

$1,000 is the excluded interest

$2,000 is the taxable interest (or the $3,000 minus $1,000)

Right?

If so, I have a test case that appears to show what you are saying. I need to review this and write up a test case for the developers, who may or may not accept it.

Let me ask you, are you using the CD/download version of TurboTax (I assume so)? I ask because we are getting close to the filing deadline, and there isn't much time for them to confirm the problem and resolve it. You may want to consider doing an override if you want to file by April 18th.

Let me know.

[tsaiclops]

Yes, what you listed is the correct scenario.  If I go to "Social Security Benefits Worksheet", line 3 shows $3000.  But when I right click on the "source", it only shows $2000 for the taxable interest.

I am using downloaded version of TurboTax Deluxe.  Thank you very much for your help.

[dmertz]

"Why did the IRS break out line 2a (1040) on to a separate line?"

At least two reasons:  The amount on line 2a is considered to be income, albeit nontaxable income, so it needs to be accounted for on a tax return just like any other nontaxable income.  The amount on line 2a is also used as a modification to AGI for ACA purposes.