box 3 of 1099-INT

[dzung]

box 3 of 1099-INT ( treasury bond interest which is taxed in federal but not state) - Does Turbo tax program auto deduct Box 3 value $ to state automatically Or I have to go to state and DEDUCT the box 3.

[baldietax]

yes generally Box 3 of 1099-INT should flow to state as a subtraction to Federal income (depending how your state handles it).  Also if you have MM funds on a 1099-DIV you can specify the $ amount of US Gov Obligations which also flows to state as a subtraction.  You should check your state return to confirm the subtraction.

[dzung]

my state is California - I did a test by changing box 3 =0 ( instead of $4128) and the result is:

1. Federal tax : The refund increased === Make sense since the income is lower ( box 3 is not included in box 1)

2. Ca state:   CA refund increased! It means turbo tax does not subtract the interest income from box 3!! and it appears we have to go to CA state to deduct the interest from box 3.

[baldietax]

ok I'm not familiar with how CA handles Treasuries, if you have to explicitly enter the subtraction from Box 3 etc.

perhaps @VolvoGirl can confirm/advise.

[VolvoGirl]

I’m in California too.   It works right on my state return.   I don’t have to enter it on state to subtract.    Don’t test by entering a 0 anywhere.  Try entering an actual amount like $1.   But I’ll test it out on my laptop test return later.   

Think I understand what happened .   You changed your federal AGI to a lower amount by deleting box 3.

Then it started CA with the lower AGI.   So your CA tax return income is less  which increased your refund.   It didn’t need to subtract box 3 (which is now 0).   If you go to state to deduct it then you will be deducting it twice.  Follow?

[VolvoGirl]

I’m trying to write up an example but think I’m getting more confused.   Did you mean the California refund Increased OR Decreased?    

[dzung]

The California refund Increased ( as if box 3 is not auto deducted from CA state)

[VolvoGirl]

I tested it.  Unless you are changing something else too then CA refund should not change at all.    If anything the CA refund should Decrease because you are not subtracting box 3 to reduce the interest income.  Unless maybe you are actually seeing a CA tax due increase.  

You should compare the CA 540 and schedule CA line by line before and after changing box 3.   Are you using the Online version or the Desktop program?  After you changed box 3 did you continue though the federal return and go though CA again to pick up the changes?  

So before you change box 3 print out or save the pdf so you can compare it to the changes after deleting box 3.