Turbot tax reporting qualified dividends wrong

Are you saying that an incorrect amount is reported as ordinary dividends?

Are ordinary dividends reported on line 3b of the Federal 1040 tax return?

Are qualifying dividends correctly reported on line 3a of the Federal 1040 tax return?  Please clarify.

Your income tax on line 16 may be computed on a Schedule D Tax Worksheet 

or Qualifying Dividends and Capital Gains Worksheet.

@dheysse 

Qualified dividends are included in total ordinary dividends. On a 1099-DIV box 1b, qualified dividends, shows how much of the ordinary dividends in box 1a are qualified. On Form 1040, line 3a, qualified dividends, is the sum of box 1b on all of your 1099-DIV forms, and Form 1040 line 3b is the sum of box 1a on all of your 1099-DIV forms. Form 1040 line 3b includes the amount on line 3a.

My very experienced tax accountant says box 3a Qualified dividends is separate from box 3b Ordinary dividends. The brokerage firm also generates Form 1099-DIV like that: box 1a Qualified dividends is separate from box 1b Ordinary dividends. In other words, Ordinary dividends does not include Qualified dividends, 

contrary to what others replying to this thread have said.

I get a warning when I put zero in box 3b Ordinary dividends and some number in box 3a Qualified dividends. The warning says Ordinary dividends must be greater than Qualified dividends. That means TurboTax is going on the assumption that Ordinary dividends includes Qualified dividends. I think that's wrong, unless TurboTax does its tax calculations in a way that still applies capital gains tax rate to qualified dividends and then subtract qualified from ordinary dividends first, then applies income tax rate to the remaining amount.

Can we get an expert answer here?

In here https://www.irs.gov/publications/p550 , I see the following, which strongly suggests Ordinary dividends includes Qualified dividends, but then whoever wrote this explanation might not fully understand the situation either, and the only accurate explanation is to examine the software code used by the IRS to check our returns.

Ordinary Dividends

Ordinary dividends are the most common type of distribution from a corporation or a mutual fund. They are paid out of earnings and profits and are ordinary income to you. This means they are not capital gains. You can assume that any dividend you receive on common or preferred stock is an ordinary dividend unless the paying corporation or mutual fund tells you otherwise. Ordinary dividends will be shown in box 1a of the Form 1099-DIV you receive.

Sorry but the qualified dividends in box 1b are the part (or all) of box 1a dividends. You might not be able to tell it is being taxed differently on your tax return.   Even though the full amount shows up in the total income on the 1040 line 7, if you have capital gains or qualified dividends the tax is not taken from the tax table but is calculated separately from Schedule D. The tax will be calculated on the Qualified Dividends and Capital Gain Tax Worksheet. It does not get filed with your return. In the online version you need to save your return as a pdf file and include all the worksheets to see it.

See the instructions on the back of the 1099Div

https://www.irs.gov/pub/irs-pdf/f1099div.pdf 

It says.....

In this return, I have the same value in Form 1040 boxes 3a and 3b.

I only see Schedule B (Interest and Ordinary Dividends) in my saved PDFs, not Schedule D that you mentioned, possibly because I only received dividends in 2022, and did not have any capital gains or losses to report.

I see that Schedule B line 6 ends up in Form 1040 box 3b, and those are Ordinary dividends. Thus I still cannot tell whether my qualified dividends I entered in Form 1040 box 3a are calculated using capital gains rate, since TurboTax did not generate a Schedule D.

The tax will be calculated on the Qualified Dividends and Capital Gain Tax Worksheet. It does not get filed with your return. In the online version you need to save your return as a pdf file and include all the worksheets to see it.

This is all the sections in the PDF downloaded from my TurboTax Online session, and I don't see that worksheet:

Thanks for all your well-intended comments, but here is what actually happened.
   I had two1099's that uploaded perfectly. Two of them had qualified dividends. The total dividend and qualified dividend info uploaded correctly.
   I also had cap gains so Turbo Tax calculated my tax using the Qualified Dividends and Capital Gain Tax Worksheet. Turbo Tax did not include both 1099's amounts for qualified dividends in that worksheet: it only picked up one (the smaller one). All the rest of the dividends were treated as ordinary dividends in that sheet, and then on the Form 1040 it did not include all the qualified dividends that were listed on both 1099s. It is a bug in Turbo Tax.
   After calling Turbo Tax support, I told them I would simply delete one 1099 and combine all the info from those two into a single 1099 entry. That fixed the problem and I got about $3,450 lower taxes.

I confirmed all the above by looking at the worksheet itself in the details from the return.

@dheysse 

Did you use TurboTax Online or TurboTax Download for what you described?

Did you use auto transfer from the brokerage firm to bring your 1099-DIV into TurboTax?

Did the brokerage firm treat Total dividends as the value that includes Qualified dividends? 

1. i was using Turbo Tax online, used it for at least 15 years running now so no rookie.
2. The data was uploaded directly from my online brokerage accounts to Turbo Tax by Turbo tax.  No glitches, those uploads are correct in each box of the 1099-DIV (and INT also, btw)
3. The firm's 1099-DIV shows all dividends included in Total Ordinary Dividends 1a, qualified or not, and then broke out the amount that was qualifies separately, in line 1b. There were total div 1a and qualified div 1b on each 1099-DIV, one for each brokerage account.

But the form 1040 only showed the qualified div total for one account. The same error was in the Cap Gains and Div worksheet. Looks like TTax only picked up one account's qualified div.

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@myhui wrote:

This is all the sections in the PDF downloaded from my TurboTax Online session, and I don't see that worksheet:

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@myhui 

When you created the PDF you selected only the forms required for filing, or "Just my tax return." As VolvoGirl said, in order to see the Qualified Dividends and Capital Gain Tax Worksheet you have to include all the worksheets in the PDF. In TurboTax Online select "Include government and TurboTax worksheets." In the CD/Download TurboTax software select "Tax Return, all calculation worksheets."

I did the following steps to successfully get all the forms and worksheets saved:

But I only found these two among the forms:

Form 1099-DIV Worksheet 2022

SMART WORKSHEET FOR: Schedule B: Interest and Dividend Income

I do not see the Qualified Dividends and Capital Gain Tax Worksheet that @VolvoGirl noted.

In this amended return, I typed in zero for Total Dividends, so then the only dividends that show up are the Qualified Dividends.

But I believe you that Total Dividends includes Qualified Dividends, although I still have not proven that myself by typing in the same number in both Total and Qualified and check that the whole amount is treated as Qualified dividends.

Thus I still have the problem that I do not see how much tax is calculated for my Qualified Dividends, since both these forms:

Form 1099-DIV Worksheet 2022

SMART WORKSHEET FOR: Schedule B: Interest and Dividend Income

merely repeat the fact that they have the proper amount for Qualified Dividends, but no info on what tax is calculated for them.

Here is the SMART WORKSHEET FOR: Schedule B: Interest and Dividend Income:

@myhui 

Please enter the 1099-DIV in TurboTax as it comes from the brokerage. Do not enter zero in any box if the 1099-DIV from the brokerage has an amount. Then see if you have the Qualified Dividends and Capital Gain Tax Worksheet.

When you are entering the 1099-DIV, be careful to enter each amount in the correct box. In your first post above you said "The brokerage firm also generates Form 1099-DIV like that: box 1a Qualified dividends is separate from box 1b Ordinary dividends." That's backwards. Box 1a is Total ordinary dividends, not Qualified dividends. Box 1b is Qualified dividends, not Ordinary dividends. I'm sure the brokerage did not fill out the form the way you stated it.

In some unusual cases your tax might have to be calculated on the Schedule D Tax Worksheet instead of the Qualified Dividends and Capital Gain Tax Worksheet, even if you do not have Schedule D in your return.

@rjs 
Is it possible that the decidedly minimalist return I have already filed that I don't mind sharing below

is pushing the TurboTax algorithms to not bother showing the Qualified Dividends and Capital Gain Tax Worksheet since, please note, that there is actually no tax owing due to box 15: Taxable income being so low?

I had put in a lot of detailed deductions for record keeping, and they all show up in the smart worksheets, but that's all superseded by box 12: Standard deduction.

I had gone almost all the way with a second amended return with zero in the box 3b: Ordinary dividends in Form 1040, but I didn't file that. I then told TurboTax Online to cancel that amended return, and did the procedure I showed earlier to get all the worksheets and schedules. That is most likely why on that many pages long PDF I see zero in the box 3b: Ordinary dividends in Form 1040, but it shouldn't be like that, since I had already told it to cancel the amended return.

Thus one question is: can I get the full printout of the first amended return that was filed? Despite me canceling this second amended return, it seems like some of the modified figures have remained.

I have filed an original and amended return already, where everything is directly imported from my brokerage's Form 1099-DIV by electronic transfer between Intuit's servers and my brokerage's servers, hence I didn't even need to have the 1099-DIV on my local disks. Those original and amended returns both have the same number in Ordinary dividends and Qualified dividends in both Forms 1040 and 1099.

The mix-up between boxes 1a and 2b that @rjs noted was just my own typo in these messages, not what actually went in to TurboTax Online.

In that amended return's 1040-X, Part III Explanation of Changes, I put:

Added investment interest and tax preparation software expense.

Hence the changes are not relevant to the treatment of dividends that we are discussing.

@rjs This is the 1099 from the brokerage, which was directly imported by TurboTax Online via their own servers, not by me uploading a local file:

On your 1040-X note that line 6 says the method used to figure the tax is QDCGTW. That stands for Qualified Dividends and Capital Gain Tax Worksheet. I'm not sure why you're not seeing it. It looks like maybe you can only see that worksheet in the CD/Download TurboTax software, not in TurboTax Online.

If you want to go to the trouble, you can work through the Qualified Dividends and Capital Gain Tax Worksheet on page 36 of the IRS Instructions for Form 1040 and see if you get the same result as TurboTax. But it's extremely unlikely that TurboTax is calculating the tax incorrectly.

Doing a second amended return gets very complicated. When you cancel an amended return in TurboTax it removes the Form 1040-X, but it does not undo the changes that you made in income, deductions, etc.

By the way, under the new tax law that was passed in 2017, the cost of tax preparation software is not deductible on Schedule A for 2018 through 2025. Since you are using the standard deduction it doesn't affect your tax, but you should take that out, and certainly take it out of your explanation.

I am also see that TT incorrectly handles 1099-DIV box 1b and 2a.

I purchased TurboTax DELUXE for Tax Year 2022. I have both 1099-DIV box 2a Capital Gains and 1099-DIV box 1b QUALIFIED DIVIDENDS from a large, popular mutual fund. I fit into the 15% MFJ IRS criteria, net capital gain. I used the 1099-DIV IMPORT in TT.
TurboTax DELUXE seems to be treating box 1b and 2a as Ordinary Income. For example Line 1 on 1040 has the box checked and Schedule D is blank)
What should I do with DELUXE to treat 2a and 1b as long term?
NOTE: as a Temporary Comparison, I tried using TT Online with identical 1099-DIV Import, however TT Online wants to charge Full Price me before TT will show me the Forms, Worksheets. 

1040 line 1 is wages.  You mean line 3 for Dividends?  Even though qualified dividends show up included in line 3b  the tax is not taken from the tax table but is calculated separately from schedule D.  The tax will be calculated on the Qualified Dividends and Capital Gain Tax Worksheet.  It does not get filed with your return.

In the online version you need to save your return as a pdf file and include all worksheets to see it.

For the Desktop version you can switch to Forms Mode and open the worksheet to see it.  Click Forms in the upper right (upper left for Mac) and look through the list and open the Qualified Dividends and Capital Gain Tax Worksheet.

@jeffrytt There is no discount for buying both an Online and Download TurboTax license for the same year. I asked, and received that reply.

@rjs Thanks for your tips on trying to undo a second amended return that wasn't filed. Yes I'll try to manually do the calculations as you've suggested according to the  IRS Instructions for Form 1040 .

@jeffrytt 

You can't tell from Form 1040 how TurboTax is calculating the tax on qualified dividends and capital gain distributions (1099-DIV boxes 1b and 2a). You have to look at the Qualified Dividends and Capital Gain Tax Worksheet. Schedule D is not needed to calculate the tax on qualified dividends and capital gain distributions. It's all done on the Qualified Dividends and Capital Gain Tax Worksheet.

I don't understand why you're trying to use TurboTax Online if you have the CD/Download software. In the CD/Download software you can do any comparisons that you want, save multiple versions of your tax return with different file names, and easily see any of the forms in forms mode.

Hi @rjs Thanks for indicating to me to look at the TT "qualified dividends and capital gains tax worksheet" to assess how TT DELUXE is calculating the long term Cap Gains tax on qualified dividends and capital gain distributions (1099-DIV boxes 1b and 2a).

Prior to posting, I have reviewed the TT "qualified dividends and capital gains tax worksheet"

In summary, TT DELUXE is circular and not correctly handling 1099-DIV boxes 1b and 2a.

TT "Qualified Dividends and Capital Gain Tax Worksheet" states:

"Line #3. Are you Filing Schedule D?

if Yes. Enter the smaller of line 15 or 16 of Schedule D. If either line 15 or 16 is blank or loss, enter -0

if No. Enter the amount from Form 1040 or 1040-SR, line 7

TT DELUXE is populating line 3 with 1040 Line 7  "

TT DELUXE is not populating Schedule D with 1099-DIV boxes 1b and 2a. I qualify for the IRS 15% MFJ  net capital gain. 

Here is a screen shot of TT "Qualified Dividends and Capital Gain Tax Worksheet" :

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@jeffrytt wrote:

TT DELUXE is not populating Schedule D with 1099-DIV boxes 1b and 2a.

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The amount of qualified dividends from 1099-DIV box 1b does not go on Schedule D. There is no place to enter it on Schedule D. The qualified dividends from 1099-DIV box 1b are entered on Form 1040 line 3a, and from there they flow to line 2 of the Qualified Dividends and Capital Gain Tax Worksheet.

If you are filing Schedule D, the capital gain distributions from 1099-DIV box 2a are entered on Schedule D line 13. That is in the long-term section, and the capital gain distributions are combined with long-term capital gains on Schedule D line 15, so the capital gain distributions are treated exactly the same as long-term capital gain.

But capital gain distributions alone do not require Schedule D. If you have capital gain distributions from 1099-DIV box 2a, but you do not have any investment sales, you do not file Schedule D. In that case, the capital gain distributions from 1099-DIV box 2a are entered on Form 1040 line 7 and the box on that line is checked.

It's not clear to me exactly what you think TurboTax is doing wrong.

@rjs  Below is my hand-calculated Qualified Dividends and Capital Gain Tax Worksheet, and the tax worked out to zero. I appreciate everyone's help on this thread, including @VolvoGirl .

Hello,

Yes.  This is a very confusing topic.  To see how Turbotax handles qualified dividends, go the following Turbotax thread that discusses how to print out all the tax forms (not just the one filed to the federal government).  These additional forms include the qualified dividends and capital gains worksheet which is used to figure out tax on qualified dividends and capital gains.  Disclaimer:  I'm not an accountant but when I used one, my accountant used this qualified dividends and capital gains worksheet to determine the "tax" on line 16 of Form 1040 (Tax).  This line 16 comes from the calculations of the qualified dividends and capital gains worksheet.

Link to How to Print Qualified Dividends and Capital Gains Worksheet:  https://ttlc.intuit.com/community/taxes/discussion/how-do-i-download-my-qualified-dividends-and-capital-gain-tax-worksheet-it-was-not-included-with-the/00/2608871

In brief to Print Qualified and Capital Gains Worksheet from Turbotax:

When you sign onto your online account and land on the Tax Home web page, scroll down and click on Add a state. 

This will take you back to the 2021 online tax return.

Click on Tax Tools on the left side of the online program screen.  Then click on Print Center.  Then click on Print, save or preview this year's return.  Choose the option Include government and TurboTax worksheets