topic Is TurboTax incorrectly reporting tax exempt income for State taxes? I believe TurboTax is under reporting tax exempt dividend income earned in other states. in State tax filing

Is TurboTax incorrectly reporting tax exempt income for State taxes? I believe TurboTax is under reporting tax exempt dividend income earned in other states.

jay-gardner-jr — Tue, 03 Feb 2026 11:29:36 GMT

State of Michigan taxes exempt dividend income earned in other states but the tax software is underreporting the income amount

Re: Is TurboTax incorrectly reporting tax exempt income for State taxes? I believe TurboTax is under reporting tax exempt dividend income earned in other states.

SteamTrain — Wed, 12 Feb 2025 18:13:27 GMT

@jay-gardner-jr

Go back and edit any 1099-INT with box 8 $$ in it, and any 1099-DIV with any box 12 $$ in it.

On a page or two AFTER the main form for each one, there will be a page that asks you to identify...which state's bonds the $$ came from......and if you indicated MI for all of it, then that's you made an error.

1) For the 1099-INT, with box 8 $$ in it, you would only indicate it was all MI,...only if you hold ALL MI bonds, and none form other states.

2) for a 1099-DIV with $$ in box 12, again you would only indicate it was all MI,...only if your bond funds only held MI-related Muni bonds...and that's unlikely

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3) When editing those follow-up questions, if the amounts are relatively small, it may not be worth the effort to break out the MI-related bond $$, and can be simpler to mark it all as "Multiple States", by selecting the first bullet point, then going to the end of the long list of states, and selecting the final "Multiple States". Then it all becomes MI-taxable.

4) If instead, you want to break-out the MI-$$ form the rest, then you select the second bullet point, then indicate what $$ amount belonged to MI (and any US Territories), and all the rest of the $$ are assigned as a lump amount as "Multiple States" (see below example for an NC resident):

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Re: Is TurboTax incorrectly reporting tax exempt income for State taxes? I believe TurboTax is under reporting tax exempt dividend income earned in other states.

jay-gardner-jr — Thu, 13 Feb 2025 13:06:51 GMT

Thanks much for your reply to my question. When I entered the data originally , I had split the MI and non MI exempt interest and dividends per the steps you outlined. I then verified the entries by examining Sch B to confirm the tax-exempt income had been split correctly between MI and non MI income. BUT , Turbo Tax is under reporting the correct non MI income in my State return. Following one of your suggestions, and to test the software, I did temporarily change the entries to 'Multiple States' only and then back to the original entries. The result was that the income on my Michigan return did increase but not to the correct amount. On the Michigan return, there is no way to see what is behind the income entry (Sch 1, Line 1) so I cant tell what is included or not.

Re: Is TurboTax incorrectly reporting tax exempt income for State taxes? I believe TurboTax is under reporting tax exempt dividend income earned in other states.

jay-gardner-jr — Thu, 13 Feb 2025 16:06:41 GMT

I believe I have found the answer to the question I posed and have concluded that the software is correctly calculating the state tax. It turns out that TurboTax is reducing the non MI tax exempt income by the percentage that bond amortization premium represents of total tax exempt interest income. Intuitively this makes sense but there was no way to understand or track this calculation on any of the supporting forms. It would help if I could click on the resulting reported income in the box to understand how it is calculated.

Re: Is TurboTax incorrectly reporting tax exempt income for State taxes? I believe TurboTax is under reporting tax exempt dividend income earned in other states.

SteamTrain — Thu, 13 Feb 2025 20:04:46 GMT

It might also be reduced...if you buy a Muni bond during the year, and you pay, and report, the accrued interest you paid out to buy that Muni, and $$ reported on a 1099-INT. (not a problem for Bond funds reported on 1099-DIV though...they take care of it in the background)

If you are ever in that particular situation for a 1099-INT, and the 1099-INT has entries in boxes 1, or 3, in addition to box 8.....if that happens you must take out the box8 & 13 $$ amounts and report them on their own 1099-INT before you apply the accrued interest you paid on the page that follows the main form.

If you don't, then the accrued interest you paid out, gets proportioned (improperly) among the values in boxes 1, 3, & 8

Re: Is TurboTax incorrectly reporting tax exempt income for State taxes? I believe TurboTax is under reporting tax exempt dividend income earned in other states.

Addison02 — Fri, 14 Feb 2025 21:20:49 GMT

I'm having the same problem with my NC return for 2024. I've made entries like you suggested but the NC tax calculation does not change; TurboTax is treating all federal tax-exempt income as if it is coming from NC (instead of the correct 1.1% of the total being from NC). I've used the NC and XX (multiple states) split as suggested and tried having all $s as XX (with nothing for NC) but with no impact to the NC calculation.

This looks like a bug. Any ideas? Thank you.

Re: Is TurboTax incorrectly reporting tax exempt income for State taxes? I believe TurboTax is under reporting tax exempt dividend income earned in other states.

RJ65 — Sun, 16 Feb 2025 02:07:37 GMT

This is a bug in the desktop premier program. I have a CA Muni money market fund that is 85% CA Muni and 15% multi state and the Federal Schedule B is making all of the tax-exempt dividend income from this money market as CA. I split this income in the step by step between CA and multistate.

However, CA state return is not picking up the multi state 15% that is on the 1099 Div from the brokerage because the CA state program is only looking at the incorrect total tax-exempt income assigned to CA on

Federal Schedule B.

The problem is the Federal Schedule B is not breaking tax exempt income between your home state and other states.

Re: Is TurboTax incorrectly reporting tax exempt income for State taxes? I believe TurboTax is under reporting tax exempt dividend income earned in other states.

Addison02 — Sun, 16 Feb 2025 13:35:17 GMT

Thanks RJ65 for the information. I'm also using the desktop version of Premier.

I've tried entering the NC vs. all other states breakdown in the appropriate worksheet in the NC part of the app but those boxes are not editable. The Guide Me panels in the NC section don't even address this situation. This was not a problem in prior years.

Does anyone at Intuit monitor "solved" problems like this? If not, how can we alert Intuit?

It would be nice if Intuit would post a list of known bugs but I haven't found one.

Re: Is TurboTax incorrectly reporting tax exempt income for State taxes? I believe TurboTax is under reporting tax exempt dividend income earned in other states.

SteamTrain — Sun, 05 Apr 2026 13:08:15 GMT

@Addison02

As shown in the displays I posted above...it all works properly for me using Windows Desktop Premier.

It's working properly both for the 1099-INT with box 8 tax-exempt interest, and for the 1099-DIV with box 12 tax-exempt interest/dividends.

You have to use the second bullet point on the follow-up page that asks what state the $$ came from.

Stay out of Forms Mode unless you are highly experienced in how to make the proper entries.

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Edited....One year later (5 Apr 2026): We (several users) found out that starting with the 2024 software, if you want to do the table breakdown of your own state's $$ amount on a 1099-DIV form....that the first button MUST BE SET AS "Multiple States" first. Otherwise the table values are not used.

That isn't necessary for the table breakdown for tax-exempt $$ on a 1099-INT...thus an inconsistency in the software between how the two forms operate.

Re: Is TurboTax incorrectly reporting tax exempt income for State taxes? I believe TurboTax is under reporting tax exempt dividend income earned in other states.

Addison02 — Mon, 17 Feb 2025 21:42:49 GMT

Thank you Steam Train for your response.

I am doing what you say to do. I've marked over the actual dollar amounts but I broke out the NC vs. all other states amounts where indicated.

I even edited the second panel to remove NC and put all dollars in multiple states. However, the NC section treated the full amount as being from NC. There is no place in the NC panel for "Additions to Income" (for NC) as shown by these two screenshots.

The NC Schedule S worksheet should list the "multiple states" amount in line 1, column 1, but that box is empty and can't be edited.

Any ideas?

Re: Is TurboTax incorrectly reporting tax exempt income for State taxes? I believe TurboTax is under reporting tax exempt dividend income earned in other states.

Addison02 — Mon, 17 Feb 2025 21:53:37 GMT

BTW, I'm using TurboTax Premier 2024 on my Windows 10 PC. I also used TurboTax Premier on the same PC for 2022 and 2023 without this problem occurring.

Re: Is TurboTax incorrectly reporting tax exempt income for State taxes? I believe TurboTax is under reporting tax exempt dividend income earned in other states.

SteamTrain — Mon, 17 Feb 2025 22:09:21 GMT

@Addison02

Weird ! (and Yeah, you don't Add those $$ yourself in the NC interview section...they should already be there)

One thing to try while in Forms Mode, is to display that Sched S worksheet again,

Then go to the bottom and delete it.

It will regenerate ....maybe with the right numbers in it.

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But I would be uncomfortable that other things didn't transfer properly either, and might be hidden.

Might be safer to delete the entire NC form set, then re-start it all from scratch.

That has helped for a few other folks with similar Fed-to-state $$ transfer issues

To do that, you would go to the upper-left menu

<File

then select <"Remove State Return"

(yeah...whatever is in the State part is gone...but not a problem)

Then, while in Step-by-Step, you restart the NC file again with a clean transfer of all the Federal $$ and (hopefully) the exempted amounts.

Yeah, several repeated startup questions, but all might be correct now.

Re: Is TurboTax incorrectly reporting tax exempt income for State taxes? I believe TurboTax is under reporting tax exempt dividend income earned in other states.

Addison02 — Mon, 17 Feb 2025 22:31:10 GMT

I deleted the Sched S worksheet; it was regenerated like you said but with no changes. Per your instructions, I deleted the entire NC return. Then I created a new NC return and re-entered the nominal amount of data need. No change, the NC return is not adding any of my municipal bond interest to my NC income. Here's the new schedule S, part A.

Now what?

I'm about to ask for my money back from Intuit and switch to 1040.com.

Re: Is TurboTax incorrectly reporting tax exempt income for State taxes? I believe TurboTax is under reporting tax exempt dividend income earned in other states.

SteamTrain — Mon, 17 Feb 2025 22:41:44 GMT

Never had that problem myself, with using TTX all these years.

Left with

1) Make sure you Run the TTX software updates?

2) Downlaod and run the Manual Update (takes time to run, but might fix some background problem).

Manually Update TurboTax for Windows Software

The main windows version should be 024pt000pt0303

( "pt" = decimal point because sometimes the Forum computer thinks I'm posting a telephone number and deletes it)

_________________

Or (egads NO !) Customer Support:

How do I contact TurboTax?

(which might have you do a full uninstall..reinstall)

Re: Is TurboTax incorrectly reporting tax exempt income for State taxes? I believe TurboTax is under reporting tax exempt dividend income earned in other states.

Addison02 — Tue, 18 Feb 2025 14:24:25 GMT

I have been keeping my TurboTax app updated. I'm using the version that you listed.

I did have an update problem on January 30. The program release would not install. I have to go to the website you linked to download an executable to install the update. That worked ok. Subsequent updates initiated within the app worked fine.

For what it's worth, I have noticed that updates would not install unless I was running TurboTax as an administrator. That isn't an issue with anything else on my PC (and my PC ID is an administrator).

The website with the manual update downloadable files states that those files do not update the state programs: "We don't offer manual updates for TurboTax state software. If you need to update your state, here are your options." However, the link for options goes to a webpage that has NO information about updating the state software. Since the problem I'm experiencing with with the state software, I'm not confident that reinstalling the overall program software will help.

Also, earlier in this discussion, a user from California noted that he is also experiencing this problem.

Re: Is TurboTax incorrectly reporting tax exempt income for State taxes? I believe TurboTax is under reporting tax exempt dividend income earned in other states.

SteamTrain — Tue, 18 Feb 2025 15:14:24 GMT

@Addison02

Yeah, a couple of people have noticed a similar problem with their desktop state. But it's been a fairly rare situation. I have no idea what causes it, or whether it is only showing up with certain computer settings.

Using "Run As Administrator" every time you start the software might help for some stuff, but I haven't ever had to use it myself (using TTX desktop since the 1990's, and still haven't dumped my 1995 floppies).

I know that one year, a few(?) years ago, there was an issue with the early-released installation file, where they had to have folks completely uninstall their software....then get/download the most recent full installation file and use that to install again, before some issue would get fixed...but don't really remember what it was about.

That's the last thing I can think of, but it's a pretty radical step.

Sorry, but absent some TTX software engineer showing up at your home to look into the details of what's happening on your own computer, I can't think of anything else myself.

__________________

Correct, the manual update only works with the main program, not with the state....but the point to using it would only be to maybe/possibly update some background issue that might be blocking the Fed-state data transfer.

Re: Is TurboTax incorrectly reporting tax exempt income for State taxes? I believe TurboTax is under reporting tax exempt dividend income earned in other states.

RJ65 — Tue, 18 Feb 2025 16:41:26 GMT

I deleted my 1099-div and reinputted it, then answered the question with tax exempt: CA tax and multi state tax. The program worked correctly by putting the Federal Schedule B as multi state and then the CA return picked up the numbers from Federal return and put them in Schedule CA for both CA and multi state correctly.

Looks like the early edition had an issue on Federal Schedule B that impacted the state returns.

It appears to be fixed now.

Re: Is TurboTax incorrectly reporting tax exempt income for State taxes? I believe TurboTax is under reporting tax exempt dividend income earned in other states.

Addison02 — Tue, 18 Feb 2025 17:31:39 GMT

RJ65,

I'm glad you were able to fix your problem. I'll give your idea a try.

Did you delete the CA vs. multiple states data before deleting the 1099-div?

Re: Is TurboTax incorrectly reporting tax exempt income for State taxes? I believe TurboTax is under reporting tax exempt dividend income earned in other states.

RJ65 — Tue, 18 Feb 2025 17:48:06 GMT

Yes, I did delete the CA and multi state numbers and moved to a different screen.

That might have been enough to not have to delete the 1099 Div. and then simply reinput those numbers.

Re: Is TurboTax incorrectly reporting tax exempt income for State taxes? I believe TurboTax is under reporting tax exempt dividend income earned in other states.

RJ65 — Tue, 18 Feb 2025 17:59:30 GMT

delete and redo the 1099 Div