non resident state municipal income

[surfer]

I've used turbo tax for several consecutive years and generally I think it is good. However for the last two years I have received tax assessments from NY state for non reported NY taxable municipal income. I upload relatively large 1099 files ( 120 pages ) which report amongst other things municipal income from various states. I prepare the returns, go through turbo tax review, make all indicated required changes and file federal and NYS. Turbo tax does not report non NY municipal income in NY yet New York State in reviewing the filed return sends me a full accounting for interest paid by non NY municipalities that should have been included in NY income thereby generating an assessment for unpaid NY taxes.

I think it is an error in the turbo tax system particularly since NY state picks up the detail from the attached 1099 and turbo tax does not. Maybe I'm doing something wrong in prep but the new on line premier version basically forces the prep steps and doesn't permit the manipulation the desk top version does with actual forms.

I would like to know if I'm doing something wrong.

[Anonymous_]

You might not be excluding (or the program) non-NY muni income. 

[surfer]

the problem is the program is excluding the income when it should actually be adding it back from the federal exclusion so it is included in NYS taxable income-- it doesn't do that 

[KNDavis]

Hi surfer!

I suspect the issue is the entries (or missing entries) for tax exempt interest.  When you enter (or import) your investment income, if there is tax exempt interest included on the 1099-DIV, TurboTax Online asks additional follow-up questions about which state(s) the interest is from.  You must specify how much is for New York vs other states, because NY exempts interest from NY, but taxes other municipal interest.  This information is usually provided by the financial institution, often as a supplement to the 1099.  I'm guessing you may have indicated it was all from NY, when, in fact, some of it was from other states.  

I do hope this helps answer your question.  Thank you for participating in our Ask The Expert event today!

[DashonnonH]

Hi, surfer, I hope your day is going well. 

Assuming you are a NY resident, Turbo Tax will report all taxable income to your NY resident return.

In Turbo Tax software, once you have entered the 1099INT with tax exempt interest in box 8. Turbo tax will next ask "which state(s) is the interest exempt from?" You must only choose the states that you have muni bonds from and add the dollar amount for each state. 

As long as you do not add NY to this list of states exempt from interest, the muni bond interest will be added back to your income on the NY return. You should see this income on NY IT201, Line 20.

[Mike9241]

you're correct as to state municipal income.  the program does not differentiate between state muni income that is taxable and that which is not.   I have the same issue in Illinois.   some Illinois muni income is taxable other is not. i have to go through the Illinois return Schedule M and indicate the amounts for each Illinois security whose interest is not Illinois taxable. Turbotax does not do this automatically.  the Illinois return works by including in Illinois income all muni income reported on federal return and then having to manually complete Schedule M  to subtract out the exempt items.   most likley with Turbotax you'll have to do a similar manual adjustment for NY. someone more familiar with the NY return will have to advise to on the procedure. 

[Mike9241]

please clarify in what state are you domiciled (a full time resident)? generally, if you are a resident of state X you do not file out of state returns for muni interest received from non-resident states.