tax exempt interest pulled from form 1041, Estate/Trust is affecting tax liability

[slizTT]

Hello,

When I enter $3937 in Box14 and designate it code A for "tax-exempt" interest on Form 1041 in Turbo Tax, it does not reflect in my taxable income, line 2b on 1040 (it does appear on 1040 line 2a). But it does make a difference in the amount I owe. In this case, it lessens the amount of my refund by close to $285.  Why is this? It seems like only the taxable interest should matter? FYI, the $512 taxable interest I enter does show on line 2b the 1040. Got any ideas?

[slizTT]

Just an update... I can see that the tax exempt amount is getting added to my "modified" AGI on Form 8962 which is affecting my Premium Tax Credit. Can someone explain please??

Thanks!

[JulieS]

Yes, that's correct. 

Form the instructions for Form 8962:  "For purposes of the Premium Tax Credit (PTC), modified AGI is the AGI on your tax return plus certain income that is not subject to tax (foreign earned income, tax-exempt interest, and the portion of social security benefits that is not taxable)."