In Tennessee, as you correctly note, the (5% in 2016) Hall tax is a
state tax levied on investment income. If the total amount of your
interest income from bonds, notes, and dividends from stock are less
than $1,250 (or $2,500 for a married couple), then you are entirely
exempt from either having to pay this tax, or filing a Tennessee Hall
tax return. (There are some other exemptions as well, such as one based
on age and income, and another based on Tennessee-source interest income from in-state credit unions and certificates of deposit.)
You can read about those rules, and other Hall tax matters, in the short
(6) page Tennessee Department of Revenue booklet found here:
http://www.tn.gov/assets/entities/revenue/attachments/indincguide.pdfThat said, the TurboTax Tennessee state tax module works perfectly well, and will correctly exclude any non-taxable Tennessee interest income, but it requires certain specific entries on the part of the user, in order to tell the program what to do properly.
To fix your specific issue, you will want to return to the federal side of the program, and then go back to your original 1099-INT interest entry or entries. After you arrive at this place, and proceed to edit your 1099-INT information, you must
check the box on the screen titled "
Tell us if any of these uncommon situations apply" (or similar, depending on your version of TurboTax), for the item labeled "
Our state doesn't tax all of this interest" (and then choose Tennessee from the short drop-down menu of states). You can then continue on with the federal interview; and when you are done with that, you can return to the Tennessee state TurboTax module.
This is the only way to cause the program to produce the Tennessee interest summary adjustments interview screen in the state module. Once you've made the fix on the federal side, however, and you return to the Tennessee state program, you should be able to readily find the necessary interview screen, follow the instructions there, and then input your Tennessee adjustment (
i.e., reduction to state taxable interest) amount.
A series of screen-capture images is attached to the bottom of this answer to help you navigate. Depending on your particular version of TurboTax, your screens may look slightly different -- but the same principles apply in all cases. (Simply click the images to open.)
If for some reason you don't see the related Tennessee interview screen, after making the necessary correction(s) on the federal side of the program, you may need to delete your state return (that you've already begun) and "replace" it with a new state return. Doing so won't affect any of your federal data entry.
In TurboTax desktop software, you can remove a state easily from the drop-down File menu. In TurboTax online software, you can remove a state by following the instructions outlined at this FAQ webpage:
https://ttlc.intuit.com/questions/1900608-how-do-i-delete-my-state-return-in-turbotax-onlineThank you for asking this important question.
