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]

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

[renegadeak]

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

[SteamTrain]

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.

[renegadeak]

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

[Hal_Al]

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. 

[renegadeak]

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? 

[SteamTrain]

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.

[renegadeak]

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.

[SteamTrain]

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)

[Hal_Al]

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. 

[renegadeak · Accepted solution]

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.

[VolvoGirl]

Thanks for letting us know.  

[Hal_Al]

 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)!

[angela829]

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