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

[nancyd2]

I had this problem on a Michigan Resident return so it's not just non resident and part year resident.

[Retired_eng]

I ran into this in doing my part year return for NC.  All of my federal tax exempt income was paid while a NC resident but only about 1% was NC tax exempt.  I entered the split in the TT step by step, with the other 99% shown as "all other states" tax exempt.  TT program did not transfer the non NC tax exempt income to all the places it was needed.  I think it made it to D-400 schedule S but not to schedule PN (or possibly vice versa).  I ended up going to the form and overriding the code to enter the amount where needed.

[BrittanyS]

I would like to take a deeper look at this. However, I need a diagnostic file which is a copy of your tax return that has all of your personal information removed. You can send one to us by following the directions below:

TurboTax Online:

1. Sign into your online account.
2. Locate the Tax Tools on the left-hand side of the screen.
3. A drop-down will appear. Select Tools
4. On the pop-up screen, click on “Share my file with agent.”
5. This will generate a message that a diagnostic file gets sanitized and transmitted to us.
6. Please provide the Token Number that was generated in the response.

TurboTax Desktop/Download Versions:

1. Open your return.
2. Click the Online tab in the black bar across the top of TurboTax and select “Send Tax File to Agent” *
3. This will generate a message that a diagnostic copy will be created.  Click on OK and the tax file will be sanitized and transmitted to us.
4. Please provide the Token Number (including the dash) that was generated in the response.

*(If using a MAC, go to the menu at the top of the screen, select Help, then, “Send Tax File to Agent”)

 @Retired_eng 

[Retired_eng]

I sent it with token in the email reply

[VolvoGirl]

They don't take emails.  You have to post the token number here in the forum.  If the filter deletes it you can post a screen shot.  

[Retired_eng]

Thanks - that seems odd to require the number in an open forum.  The split of the exempt and non exempt income shows up on the 1099 div form with the non NC exempt income coded as state"XX".  But that does not find it's way to line 1 of NC D-400 worksheet (Interest from obligations of states other than NC).  It is not "interest" of course but rather "dividends" from a muni bond mutual fund which are Federal tax exempt but most is not NC tax exempt.  This then feeds other forms.  If I cancel the override the line goes to zero and the program also flags some other errors on a part year resident and non resident form.

[SteamTrain]

@Retired_eng 

Since you appear to be using Desktop software....

Go to that 1099-DIV in Forms Mode and

............make sure the "state" down below the break-out box, is also set to "XX"  .  If that is wrongly set to NC, then the breakout box above is ignored (showing just the part that was from NC or US Territory bonds).

See below:

___________________

[BrittanyS]

The token request must be converted to a tax file by TurboTax to see the return.  Once converted to a tax file, the file is removed of any personal information, so we cannot see any personal information.  We request tokens to see precisely what issue you are experiencing and determine if there is an issue with the software.  If there is an issue, the tax file is sent to developers to review and make corrections to the software.  See SteamTrain post above regarding the notation in forms mode—the "State where the dividends were earned.  The Postal Code should be designated as XX.  The screenshot provides an excellent notation on a possible solution to your issue.  If this does not correct your problem, please respond to this post to let us know.

@Retired_eng 

[Retired_eng]

Thank you, it was shown as "NC" (the state where I was when I earned the dividends).  But, changing it to "XX" as you suggested and then removing the override on the D-400 worksheet, the entry on line 1 there populated itself.  All forms appear unchanged from where they had been with my override and tax /refund owed did not changed.  This seems to be the fix that was needed.

[Retired_eng]

the "XX" fix did work, alas the $60 I paid to ask the expert and the 2 1/2 hours on the phone with them a week or so ago did not come up with this (:

[SteamTrain]

@Retired_eng @BrittanyS 

Yeah...the software writers "Desperately" need to change that text to indicate it is the state(s) the bond interest/dividends came "FROM"....both on that worksheet form, and in the interview.

I've seen lots of folks having the same problem this year, all reporting it in this Forum.

[nancyd2]

I have always had dividend correctly recorded as either MI or XX in the interview and it still wasn't transferring correctly to the Michigan return. I have already filed my taxes and did manage to force it to be correct. The problem is no longer visible in my return so I don't know if it got fixed in a software update or if something else happened or if it might show up again sometime when I open Turbo Tax after an update.  I did update just now and all still seems correct.

[Jrsmitty73]

I am having this issue.  The number being reported on the Michigan state return is a mystery.  I have re-loaded the information for Box #8 (tax exempt interest) and for box #12 (tax exempt dividends) and re-loaded the info on the follow-on schedule requesting Michigan vs other state entries.   The result has not changed and is approximately $14K lower than it should be on the Michigan return.  I have spent hours  trying to make this work.  Any ideas?  I am using the desktop Premier edition on a PC (Microsoft).   

[Retired_eng]

The solution for me was to make sure the state where the non (MI in your case) tax exempt income was earned is shown as "XX".  That brought that amount to my state return as taxable income.

[Jrsmitty73]

Thank you.  I’m not sure what the “XX” meant, but I figured out a solution.  I reduced the tax exempt interest and dividends on the input forms by Michigan exempt amounts and on the subsequent screen, i said 100% of the amount remaining was from “multiple states”.  The correct amount then appeared on our Michigan return.  Turbotax is obviously not working correctly if we have to do that “work around “ to get the correct result.  Wonder how many incorrect returns have been filed?  

thanks for the “idea”