Maryland Form 502 incorrectly handling tax-free dividends

[stanrubin301]

There is bug in the Maryland tax calculation.

In the federal interview, you can enter tax-free dividends and specify if those dividends are tax free for a specific state or multiple states.  Regardless of the state indicator selected, the dividends are incorrectly treated as tax-free in Maryland form 502 Additions to Income line 2.  This understates Maryland tax liability.

[stanrubin301]

I suspect the bug is related to imported data from Fidelity Investments.  When the dividend data is imported, the amounts entered for tax-free dividend from other states does is not added back into Maryland income on form 502.   If the same data is manually typed into the dividend step by step dialog, the tax-free dividend from other states is added back into Maryland income on form 502.   The bug appears to be triggered by imported data and can significantly underreport Maryland taxable income.

[stanrubin301]

Trubotax emailed me asking if my issue has been resolved.  The answer is No.  No Turbotax representative has responded.

[stanrubin301]

Fidelity Investment technical staff have confirmed that there is a problem with Turbotax handling of tax-free dividends on the state return when it is imported from Fidelity.  The problem is known to occur in Maryland returns where all tax free income was treated as MD tax free which can significantly understate the Maryland tax liability.  I don't know if the problem extends to other non-taxable Maryland income, such as national municipal interest or interest from US Government and agency securities which are not taxable in Maryland. Fidelity has reached out to Turbotax.

To correct, delete the imported tax-free income that was imported from Fidelity and enter the information manually.

To date, Trubotax has not responded.  I would appreciate a response from TurboTax.

[CatinaT1]

We are looking into this. Thanks for bringing it to our attention.

[AnnetteB6]

To take a closer look at the situation, it would be very helpful to have a diagnostic copy of your tax file.  The diagnostic file will not contain personally identifiable information, only numbers related to your tax forms.  

If you would like to provide us with the diagnostic file, follow the instructions below and post the token number along with which version of TurboTax you are using in a follow-up thread.  If possible, please include a screenshot of the token number so that it will not be redacted.

Using a CD/downloaded version of TurboTax, follow these steps:

• Select Online at the top of the screen.
• Select Send Tax File to Agent.
• Click OK.
• Post the token number here.

@stanrubin301 

[stanrubin301]

The tax file you seek is no longer available.  The imported 1099-DIV data from Fidelity was deleted and the information manually entered.  When manually entered the MD return reports the correct amount of MD tax-free dividends.  

I would suggest looking into the combination of having government interest not taxable in MD from the 1099-int and tax free interest in multiple states on the 1099-DIV. 

As for government interest not taxable in MD.  Turbotax fails to handle situations where  there is both state taxable and not taxable interest from the same financial institution.  You have an all or none option.  In the state return you make the data entered in the Federal interview non-editable.  The only solution I know of is to manually override the value on the state tax forms.  US government interest needs to be handled in a manner similar to state-tax free dividends.  The use needs the ability to break out the amount by state taxable and not state taxable.