topic Turbotax asks about exempt-interest dividends when I had none in State tax filing

Turbotax asks about exempt-interest dividends when I had none

hixen26 — Sun, 03 Mar 2024 21:50:31 GMT

This question regards filing my California tax returns

I invest in a few Vanguard funds (VTSAX, VTIAX, VTTSX), and box 12 (Exempt-interest dividends) of my 1099-DIV reads 0 dollars.

However, I get a question in my California tax returns indicating that I have exempt-interest dividends of $179. I recognize this number from my federal return, where I calculated the amount of dividends that came from U.S government securities.

Correct me if I'm wrong, but just because I made $179 in dividends from U.S government securities DOES NOT mean that these are exempt-interest dividends.

Here's the full question from Turbotax...

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Tax Exempt Interest and Dividends

U.S obligations exempt-interest dividends of $179 transferred from your federal return.
Are any of these dividends from funds with less than 50% of their assets invested in California and U.S. obligations?

Yes
No, all funds are 50% or more invested in California or U.S. Obligations.

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If I select 'Yes', Turbotax proceeds to ask "Enter Less Than 50% Exempt-Interest Dividends" and provides a text box to enter an amount.

How should I answer this question when my 1099-DIV does not indicate that I had any exempt-interest dividends? It's strange that I'm receiving this question when it doesn't seem like it applies to me.

Re: Turbotax asks about exempt-interest dividends when I had none

VolvoGirl — Sun, 03 Mar 2024 00:31:58 GMT

For Vanguard......

You will need to calculate any amounts yourself using these tables. Vanguard use to include these tables with the 1099 forms but now you have to get them online here. There are 3.

Tax information for Vanguard funds | Vanguard

It can be hard to calculate. I had to make a spreadsheet listing each fund, the dividend and percentage.

Re: Turbotax asks about exempt-interest dividends when I had none

hixen26 — Sun, 03 Mar 2024 21:48:12 GMT

@VolvoGirl Thank you for the link. Just to be clear, this question comes up when filing my California tax returns. I already went through my federal returns and calculated how much of my dividends were from U.S government securities, and that's where the $179 comes from.

What I don't understand is why I'm even being asked this question when box 12 of my 1099-DIV shows that I received zero dollars in exempt-interest dividends. It seems like Turbotax is assuming that the $179 I received from U.S government securities is exempt-interest dividends. Is that a correct assumption?

According to this Vanguard tax document, it doesn't seem like I have anything to report here: https://investor.vanguard.com/content/dam/retail/publicsite/en/documents/taxes/inbst-2024.pdf

I don't own any of the listed funds that give tax-exempt interest dividends. The instructions also say to multiply the given percentage for a particular fund/state by the amount in box 12 of my 1099, which is zero for me. So it seems to me that Turbotax's question does not apply to me. If that's the case, I'm wondering how I should proceed since I still have to answer the question.

Re: Turbotax asks about exempt-interest dividends when I had none

SusanY1 — Sun, 03 Mar 2024 22:12:58 GMT

Sometimes, TurboTax can be picky about 0s versus blank spaces. I would try returning to the federal section where the interest is entered and remove the 0 for Box 12 and see if that resolves the California issue.

If the issue persists after this, please let us know.

Re: Turbotax asks about exempt-interest dividends when I had none

hixen26 — Mon, 04 Mar 2024 00:16:53 GMT

@SusanY1 Thank you, this is very good to know. I revisited my federal returns to see how my 1099-DIV info was entered. It turns out that Turbotax had box 12 blank while the other boxes had zero (if applicable). So I entered zero into box 12. I went back to my state returns and still noticed that my California returns had $179 listed as exempt-interest dividends in the Income & Adjustments section. I decided to change my answer for the exempt-interest question by answering "Yes" and entering 0 in the Less Than 50% Exempt-Interest Dividends box. This erased the $179 from my Income & Adjustments section. Then, I backed out of this section and clicked on "Go over California again" to see if the exempt-interest question re-appeared, which it did not. So hopefully the issue is resolved now.

Re: Turbotax asks about exempt-interest dividends when I had none

SusanY1 — Mon, 04 Mar 2024 00:26:47 GMT

I am glad it is resolved. As you've noted, it can be picky in the other direction, too, sometimes preferring a 0 to a blank. Once in a while, this sort of thing causes no problem whatsoever in the federal return but resurfaces in the state, as seems to be the case here. Thank you for reporting back with your experience!