US Govt Treasury Bills are not taxed by states. Where do I enter this on the Turbotax form?

[SteamTrain]

@sharongmel 

You don't need to enter a state ID for the box 3 $$ on a 1099-INT.  No state taxes those $$.

Nor will PA end up taxing those box 3 $$...IF...if the TTX PA software is working right.

Unlikely that the tax software wouldn't get that right at this late stage...but stranger things have happened.

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[KREC]

Does anyone have experience with this for Maryland? Does turbotax automatically populate the 502SU (subtraction form) to reflect the treasury interest or do you have to manually input it?  

[VolvoGirl]

Wait to get the 1099INT form.  The amount should be in box 3 for savings bonds and treasury.  Then Turbo Tax will know to subtract it from the state return.  Yes it's automatic.   If you are entering it yourself on the interest screen put it in box 3 not 1.  You may have to click the little box  that says I have more boxes.

[KREC]

Thanks. I import my 1099 from brokerage into TT so it’ll populate if anything appears in box3. I think most of the treasury obligations are not maturing so assume that the interest they gain in the interim, is not taxable until maturity? if it is, the number would appear in box 3?

[VolvoGirl]

Right not taxable until they mature or you cash them in.  But you can report the interest each year so you don't have a big interest when you cash them.

See IRS Publication 550 starting on page 7 for Savings Bond Interest
https://www.irs.gov/pub/irs-pdf/p550.pdf

Reporting options for cash method taxpayers. If you use the cash method of reporting income, you can report the interest on series EE, series E, and series I bonds in either of the following ways.

Method 1. Postpone reporting the interest until the earlier of the year you cash or dispose of the bonds or the year in which they mature. (However, see Savings bonds traded , later.)

Note. Series E bonds issued in 1980 matured in 2010. If you have used method 1, you generally must report the interest on these bonds on your 2010 return.

Method 2. Choose to report the increase in redemption value as interest each year.

You must use the same method for all series EE, series E, and series I bonds you own. If you do not choose method 2 by reporting the increase in redemption value as interest each year, you must use method 1.

[dmertz]

Amounts entered into box 3 of TurboTax's 1099-INT form are automatically transferred to your tax income tax return for subtraction from your federal AGI.  Yes, TurboTax automatically transfers that to Schedule SU line ab of your Maryland tax return.

[KREC]

I have a 1099 INT.
box 1 shows 3xxx

box 3 shows 2xxx

box 11 shows 3x.xx

box 12 shows 9.xx

Then in the section below the broker states “the following amounts are not reported to IRS . They are presented for your reference in preparing your return.

then it lists:

taxable accrued interest paid 1xxx.xx

Do I include the taxable accrued interest paid on the return? If so where and how?  If I import my 1099s from my broker will it be imported? Thanks.

[SteamTrain]

@KREC 

No, the accrued interest will not be imported.

Yes, you should report it since it reduces your taxable income.

BUT

You will need to create two 1099-INT forms

......one with the box 1 and 11 $$, and a second one with the box 3 and 12 $$.

The accrued interest you paid when you bought the bonds, needs to be reported just on the particular 1099-INT for which you received interest.

For example: if you paid accrued interest on buying a US Treasury bond, then that gets reported on the 1099-INT which had the box 3 $$ on it.

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Where is it reported?  When you enter the 1099-INT,

On a page AFTER the main form page there is a page with some checkboxes

...you check the box indicating you need to adjust the interest reported.

...........then a page or two later, you will get a box to enter the accrued interest you paid to buy the bond(s) (see below):

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(Picture from desktop software...but Online Q&A looks similar)

[KREC]

@dmertz

the amount showing up on line ab on Maryland 502SU is different than what I have in box 3 of the 1099 INT. 

example: 1099 INT

box 3 $2944

box 11 $35.12

box 12 $9.24

Maryland line ab has $2935? 

box

[SteamTrain]

Box 3 minus box 12 = 2935

Box 12 is the amortized premium amount that reduces the amount of box 3 that gets taxed on the Federal form.

[dmertz]

The value TurboTax is putting on line ab of Form 502SU is box 3 minus box 12 from the Form 1099-INT.

[SteamTrain's post explains why.  If it's not included federal AGI, you can't subtract it on Form 502SU.]

[KREC]

Thanks!

[KREC]

Why is this accrued interest paid not reported to the IRS on the actual 1099? I’m confused by the terminology. I’ve seen posts that just reference taxable, accrued interest. In my case it says taxable, accrued interest paid. Does that mean I would pay tax on it again a second time if I don’t make the adjustment? in the details for interest income on the statement. It shows not just treasury, but also corporations, Fannie Mae, and other listings. This is the first time I’ve had any of this on a statement. Thanks.

[SteamTrain]

The accrued interest you paid to the seller....it is not included on the actual 1099-INT form...because the IRS has not yet created an actual field on the form to report it.   Thus, even though it is allowed to be deducted, they jsut have a workaround way to do it.

At some time in the future, if they (the IRS) does create actual form fields for it to be reported , I would hope they would create three new boxes...one relating to Corporate bond $$  from box 1, one to report for Treasury bonds/notes $$ from box 3, and another one for tax-exempt $$ reported in box 8.

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As far as not reporting it...you aren't forced to, but it does reduce the $$ coming in as taxable income for just the one year when you paid accrued interest to that seller.

The amortized bond premiums showing in boxes 11,12,13...where you overpaid those bonds. those $$ are a smaller amount that must be amortized a bit at a time over the life of the bond....or to the first call date....whichever happens first.

_________

One subtle requirement about reporting the accrued interest you paid, to reduce reported taxable interest paid out on the 1099-INT...is that you don't get to report that accrued interest until the year you actually get an interest payment on that particular bond.   

Example:  You buy a treasury bond with $100 of accrued interest in December of 2023, but it doesn't pay any interest to you until say Feb of 2024....you don't declare that accrued interest until you prepare 2024 taxes in 2025.  I keep a spreadsheet for the bonds I buy, to keep track of when I can post the accrued interest I paid for any particular purchase.  My brokerage (Fidelity) doesn't keep track of the allowed "tax Year" amounts....just gives me a total paid during 2023.

[KREC]

Thanks. The statement shows line items for accrued interest recd, accrued interest paid and also has totals showing total interest and then below it total accrued interest paid. All somewhat confusing to determine what and when to include something in the adjustment interview.