tax-exempt from California state from U.S. Treasury obligations

[entidtest5]

Hi there,

I have US treasury notes which were reported to IRS from my financial institution in 1099-INT (line 3) and 1099-OID (line 8).  I know these are tax exempt for state of California.   However, the sum of these amounts (line 3 +line 😎 is not the same as the one reported in form CA (540) from line 2 (taxable interest) in Part I Section A  under column B (subtractions) .  How does turbo tax determine this amount in this form.  please advise.  I believe this is a bug.

Thank you

[baldietax]

it may be a bug with import if you imported these, the solution when imported 1099s are doing strange things with state adjustments for US Gov or Munis is usually to try inputting them manually.

More usually if the state adjustment is off vs. what is expected, it's usually due to something else being picked up from Fed return, rather than a bug.

What is the difference exactly, is CA subtraction larger or smaller than the sum of your 1099 Treasury boxes?

Did you have any money market funds on 1099-DIV for which you reported US Gov interest that is also exempt in CA?

Did you have any adjustments on either form for premium (provided on the 1099 directly) or accrued interest (adjustments you track and enter yourself), then those would be subtracted from the interest amount going thru to state and you need to take into account in your reconciliation.

Note here if you did have accrued interest adjustment but have other income boxes filled in e.g. 1099-INT has Box 1, 3,8 and any of them has accrued interest adjustment, then TT can't figure which box it applies to and will pro rata them across everything which would also affect the net amount going to CA subtraction; if this applies then you need to split up the 1099-INT between income types.

[entidtest5]

No.  I do not have 1099-DIV.  As i stated, i only have 1099-INT + 1099-OID.  This should be straightforward.  

[entidtest5]

Also, the CA subtraction is smaller than the sum of the exempt interest.

[baldietax]

yes ideally TT would provide a drill down to see what makes up the subtraction but unfortunately not

if the CA subtraction is smaller by some smaller amount then my guess is it's being reduced by premium or accrued interest adjustments, so did you have anything in 1099-INT Box 12, 1099-OID Box 6 etc?  Did you enter any adjustments so far, or just what was reported on the 1099s?

[entidtest5]

No, i do not anything in 1099-INT Box 12 or 1099-OID Box 6.  I do have accrued interest which reduces the federal tax.  If I removed this accrued interest value, TT carries over the taxes to CA (540) correctly.  This tells me that TT is doing incorrect calculation when accrued interest exists.  For now, i will make CA adj to reflect the correct amount in CA (540).   I called TT support and spent 2 hours on the phone with them.  None of them was able to help.  The worst part is that TT support is useless.  They told me they'd open an investigation but in reality nothing happened.  They just lied.  I will switch to another tax platform next year.  

[baldietax]

ok good we know it's the accrued.  So what else is on this 1099-INT besides Box 3?  If you have Box 1 and Box 8 on the same 1099-INT as Box 3, you need to split the 1099-INT up to get the accrued interest applied to the correct box, TT has a limitation with this.  I've never had an issue with the accrued calculation once the 1099 is split up.

[baldietax]

also the screen has a prompt for this but just to make sure, the accrued needs to be input as a positive number, which will be subtracted

[entidtest5]

i have 2 different interest entries in schedule B.  One for box 3  which includes accrued interest adjustments and one for box 8.   This is where i am seeing the calculation carries over to CA (540) is incorrect.

[entidtest5]

I have a positive number for accrued interest.  The problem is that TT uses some random number (who knows) to do calculation.  go figure

[baldietax]

Re "i have 2 different interest entries in schedule B.  One for box 3  which includes accrued interest adjustments and one for box 8"

do you mean on Schedule B (Box 8 interest would not appear here), or on your 1099-INT.

I'm still not clear if you split the 1099-INTs and if you have Box 3 and Box 8 together with any accrued interest you will definitely get incorrect results.  Try entering a new 1099-INT from fresh with just Box 3 and just the accrued interest for the Treasuries nothing else and see if you get the correct result on both Fed and State.  If that works then delete the old 1099-INT(s) and enter Box 8 on a separate 1099-INT.

If that doesn't work I'm out of suggestions.

[entidtest5]

Line 3 and line 8 are reported as a separate entry.  For accrued interest, i entered it in the same form as line 8.  The tax exempt interest is off for ~$100 (smaller) in CA (540)

[baldietax]

I think this is solvable but based on your replies I'm not getting clear picture that you've fixed the 1099s the way I'm describing; if you are saying the accrued interest for your Treasuries is entered on the same 1099 as your Line 8, it won't work.  So if that's where things are still stuck, to recap again - delete the 1099 you already entered that isn't working, and start over.  For the one physical 1099 you got from your broker, enter it into TT as two separate 1099s as tho it came from two different brokers, one for anything to do with your Treasuries only (Line 3 and the accrued interest), and one for anything to do with your munis only (Line 8).

[entidtest5]

right.  that is what I did.  line 3 + accrued interest is in 1 form.  Line 8 is another form.  they are  in two separate forms . I am still getting incorrect amount in CA (540).