How is tax-exempt income subtracted from taxable income?

[ericsbcn]

This is not really a TT question, but a general 1040 question.  I have some tax-exempt dividend interest reported on my 1099-DIV (line 11) .  It gets entered on the 1040 line 2a.  I believe that amount should not be included in the total taxable income.  So how is it subtracted?  It looks like the total taxable income on 1040 includes the total ordinary interest income (1099-DIV line 1a).  But I don't see where the line 11 amount is subtracted.  Does that happen later when the total tax is calculated?

[Texas Roger]

Tax exempt interest is shown on line 2a of form 1040. It is not included on line 2b of form 1040 which is the line that is included in Adjusted Gross Income. Not sure what line 11 you are referring to.

[AnnetteB6 · Accepted solution]

The amount of tax-exempt interest is reported on Form 1040 line 2a, but it is not included as part of line 2b which is added to your income.  Since it is never included as part of your income, it does not get subtracted later.  

The tax-exempt interest may affect your state return, but it is not taxable as part of your Federal return.  

@ericsbcn

[ericsbcn]

Thanks.  I guess that makes sense.  I thought tax-exempt amount in line 2a was included in the total ordinary dividends amount in line 3b.  That's why I thought it needed to be subtracted out later.  

The line 11 that I was referring to was line 11 of the 1099-DIV, which gets copied over to 1040 line 2a.