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dhjaffe
Level 2

Tax-Exempt Interest & Dividends in State Return

While filling in the 1099-DIV information in the Federal section of my tax return, if there is an amount in Box 11 (Exempt Interest Dividends), I enter it. Yet in the State section (mine is CT), I am again asked to enter Federally Tax Exempt Interest & Dividends into a blank box. Should I be entering this same amount of Exempt Interest Dividends that I already entered in the Federal section? I am concerned I will now be taxed on double the amount that I actually earned. Doesn't the Federal information automatically get transferred to the State section?

2 Replies
KathrynG3
Expert Alumni

Tax-Exempt Interest & Dividends in State Return

Possibly. In general, tax-exempt interest applicable to your state of residence will automatically transfer to the state section if you have indicated that the tax-exempt interest was from that state.

 

However, it is possible to have tax-exempt interest included in the return that are not from the resident state or that may have a special treatment in your state.

 

For example, Connecticut may require an addition to income in rare cases. Per TurboTax:

Your federal tax-exempt interest automatically transfers to your Connecticut return.

In rare situations, however, an addition to Connecticut income is required for any interest or dividend income on obligations or securities of any authority, commission, or instrumentality of the U.S. which federal law exempts from federal income tax but does not exempt from state income taxes.

 

Secondly, TurboTax will need you to enter any Connecticut Tax-Exempt Interest that was taxable on the federal return.

 

To identify the tax-exempt interest from Connecticut, answer the questions following the original entry in the Federal interview and any subsequent questions in the Connecticut interview.

 

For more details, see 2020 CT-1040-Online-Booklet, page 23.

 

waltryan1
Returning Member

Tax-Exempt Interest & Dividends in State Return

So I have entered my tax exempt interest via the 1099 on my Federal return. When I get to my CT return, a figure is in fact brought over by TTX (as mentioned in the earlier reply) and added to the state AGI. However this number is different than the exempt amount on the federal return or 1099. I have been trying to reconcile the CT number back to the federal to no avail. I have tried finding an applicable reply here, plus have also spoken (at long length) to an TTX expert but cannot seem to get a straight answer to why the figures are different. I was pointed to bond premium amortization but I do not see how that applies in my situation. I am to the point where I am simply going to file as is and suffer any consequences that may result!

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