topic I have Treasury bill interest that is exempt from state taxes. Why is turbo tax showing it as taxable income on my state return? in State tax filing

I have Treasury bill interest that is exempt from state taxes. Why is turbo tax showing it as taxable income on my state return?

renegadeak — Wed, 11 Feb 2026 04:48:26 GMT

Re: I have Treasury bill interest that is exempt from state taxes. Why is turbo tax showing it as taxable income on my state return?

VolvoGirl — Thu, 01 Feb 2024 20:52:31 GMT

When you entered the 1099INT did you put the amount in box 3? It should be a subtraction on your state return.

Re: I have Treasury bill interest that is exempt from state taxes. Why is turbo tax showing it as taxable income on my state return?

renegadeak — Thu, 01 Feb 2024 21:28:53 GMT

I did put it in box 3. I then deleted the entry and my state refund increased by $200.

Re: I have Treasury bill interest that is exempt from state taxes. Why is turbo tax showing it as taxable income on my state return?

SteamTrain — Thu, 01 Feb 2024 21:52:39 GMT

which state?

Someone with that state software set will have to check it out and see if the Federal-State box 3 field interlinks are going to the wrong place in that state's software.

Re: I have Treasury bill interest that is exempt from state taxes. Why is turbo tax showing it as taxable income on my state return?

renegadeak — Thu, 01 Feb 2024 22:36:49 GMT

State of Virginia. How would I find out if the interlinks are correct?

Re: I have Treasury bill interest that is exempt from state taxes. Why is turbo tax showing it as taxable income on my state return?

Hal_Al — Thu, 01 Feb 2024 23:17:29 GMT

I have Virginia software (download Deluxe). It's working properly. Just entering the Treasury bill interest, in box 3, at the 1099-INT screen, automatically gets it deducted from the Federal AGI, for VA.

There was a software update yesterday that may have affected this.

Re: I have Treasury bill interest that is exempt from state taxes. Why is turbo tax showing it as taxable income on my state return?

renegadeak — Fri, 02 Feb 2024 00:38:22 GMT

Thanks, I appreciate the replies, however it’s still adding it as taxable income in my VA return. I have tried deleting the entry & re entering it but each time it adds $200 to my state tax. Is there any way I can go into the form itself & make it tax exempt?

Re: I have Treasury bill interest that is exempt from state taxes. Why is turbo tax showing it as taxable income on my state return?

SteamTrain — Fri, 02 Feb 2024 00:43:55 GMT

With the online software, you don't have direct access to the Forms.

Suggestion: Delete that 1099-INT form entirely. then re-enter it manually as coming from the US Treasury....from scratch.

Make sure you are using the 1099-INT form ...and make sure you are looking at the state refund meter as the taxes will increase on the Federal meter.

Re: I have Treasury bill interest that is exempt from state taxes. Why is turbo tax showing it as taxable income on my state return?

renegadeak — Fri, 02 Feb 2024 01:00:47 GMT

That’s to bad about the forms. I have deleted the 1099-int as you suggested. Each time I add it back my state tax bill goes up. I have been putting it in as department of the treasury not US Treasury but not sure that will make a difference. I don’t know, I may end up having to file a paper return. Very frustrated with this.

Re: I have Treasury bill interest that is exempt from state taxes. Why is turbo tax showing it as taxable income on my state return?

SteamTrain — Fri, 02 Feb 2024 01:11:40 GMT

The only way to see what's going on is to see your actual VA forms.

Call Customer Support....they can either see what the problem is, or get a Diagnostic file form you to puzzle it out:

What is the TurboTax phone number? (intuit.com)

Re: I have Treasury bill interest that is exempt from state taxes. Why is turbo tax showing it as taxable income on my state return?

Hal_Al — Fri, 02 Feb 2024 01:42:36 GMT

On the 1099-INT screen, check the box "My form has more than just box 1" (or some such wording) to get box 3 to pop up. Enter the interest in box 3.

Re: I have Treasury bill interest that is exempt from state taxes. Why is turbo tax showing it as taxable income on my state return?

renegadeak — Sun, 04 Feb 2024 13:11:53 GMT

Talked with turbo tax yesterday. Took them quite a while to figure it out but they got me a answer. Virginia has an age related deduction based on federal agi. The deduction is reduced $1 for every $1 over a federal agi of $75000. So while they weren’t taxing the t- bill interest, my VA refund was reduced cause the interest raised my federal agi above $75000. Thanks all for trying to help.

Re: I have Treasury bill interest that is exempt from state taxes. Why is turbo tax showing it as taxable income on my state return?

VolvoGirl — Sun, 04 Feb 2024 18:00:12 GMT

Thanks for letting us know.

Re: I have Treasury bill interest that is exempt from state taxes. Why is turbo tax showing it as taxable income on my state return?

Hal_Al — Sun, 04 Feb 2024 18:45:32 GMT

That didn't make sense upon first reading, but after reading the form: here's the interesting tidbit:

Virginia's age deduction comes after positive adjustments (additions) to the federal AGI, but before negative adjustments (like the federal interest deduction)!

Re: I have Treasury bill interest that is exempt from state taxeIn NY interest on Tbill should be entered in box 3s. Why is turbo tax showing it as taxable income on my state return?

angela829 — Sat, 17 Feb 2024 12:06:03 GMT

In NY Tbill interest should be entered in box 3 which will be included in Federal interest and excluded in State interest.

Re: I have Treasury bill interest that is exempt from state taxeIn NY interest on Tbill should be entered in box 3s. Why is turbo tax showing it as taxable income on my state return?

cknyc — Tue, 20 Feb 2024 15:36:42 GMT

Just dealt w this for New York State. Deleted from box 1 and entered in box 3. Federal tax did not change and NYS tax dropped appropriately.

Further note: appreciated the prior advice to click to add extra boxes, which got box 3 to show up.

Also: downloaded 1099 from Treasury Direct and it only had Box 1, so had to redo for TT. TT should fix this!

Re: I have Treasury bill interest that is exempt from state taxes. Why is turbo tax showing it as taxable income on my state return?

KAB33 — Mon, 10 Feb 2025 22:41:34 GMT

I am having the same issue. I have deleted the 1099-INT and re-entered the interest for box 3.

In my VA state taxes we are complicated because we were part year residents (moved to DE) and the SAME thing appears to be happening. They just moved the income it seems over to the DE side (as income NOT earned in VA).

I don't see any line entry on the state return 760PY that shows a deduction from our FEDERAL adj income for the almost $42k in treasury interest.

Now I've paid for two state returns and I can't seem to find where there this deduction was given.

Re: I have Treasury bill interest that is exempt from state taxes. Why is turbo tax showing it as...

ThomasM125 — Tue, 11 Feb 2025 01:52:31 GMT

When you review the income portion of the Virginia return, you should see a screen that says Here's the income that Virginia handles differently, and you need to choose the option under investments that says Exempt US Bond Income:

On the next screen you can enter the amount of interest to be excluded:

You will see the subtraction on your state tax summary:

@KAB33