US Government earning (ie, agency bond) deduction from state tax

[GreenApple123]

Fidelity reported my US Government interest (Federal Home Loan Bank, etc.) in the 1099-INT. Agency Bonds are federal-taxable, but state tax free. 

After I entered the taxable interest (from agency bonds), there is no box to check for state income tax adjustment (I am from PA). Should I just manually adjust the agency bond earnings and go to the state tax return part to manually enter it?

(interestingly, I noticed that for 1099-DIV, TT does ask for adjustment for "dividends is US. Government Interest". Does TT place those government interests earning at the wrong place?

[DawnC · Accepted solution]

Enter the 1099-INT as it as on your federal return with no adjustments so the full amount is taxed on the federal return.  Then when you complete the PA state return, there will a section for interest adjustments where you can exclude any interest not taxed by PA from your taxable income. 

Interest derived from obligations not statutorily free from state or local taxation under any other act of the general assembly or under the laws of the U.S. is subject to PA personal income tax. Interest on obligations issued by or on behalf of the U.S. government is not subject to PA personal income tax. 61 Pa. Code §103.16(e)

[cbeis]

I am having same issue with the ND return.  I do not see a field to enter an adjustment, nor will TT allow me to override the calc.  Also the info was input to from K-1 not a 1099

[GreenApple123]

I tried to use the TT provided Int Inc Stmt, it does not seem to work properly: If I put the US gov bond amount under the column US Govt Interest to deduct the interest, it will BOTH add and deduct the amount (ie, add to the total, and adjust the amount on line 7 (Interest Income from direct obligation of the US Government) of Sch A... 

Looks like I can only use OVERRIDE for Line 7 of Sch A? Am I missing anything?

[MH59]

PLEASE HELP!!! Minnesota State Return similar problem. Last year Turbotax (and the state) had a line for "Additional Subtractions". Not this year. Agency bond interest is to be entered on Line 18 of MN M1M but Turbotax requires override to accomplish this and override does not allow "supporting info" or include a calculator. In addition eFiling is not supported if overrides are used. Any suggestions? Thank you!

[raynicki]

I have the same problem as you and cannot get an answer. I have spent more time trying to figure this out then if I did my taxes by hand . Every year it seems I have a problem doing Mn taxes. Iam looking for the same answer

[BillM223]

In which box is the interest entered on the 1099-INT?

[stanrubin301]

I have the same issue in the state of Maryland.   However, the Maryland section of Turbotax does not support editing the amount of the interest that is US Government deductible in Maryland.  It assumes all interest on my 1099 is US Government interest or non is.  The software does not permit adjusting the amount for only the US government portion.  The only fix this is to override the value on the Maryland tax form.    There should be a box during the interest entry process, similar to municipal income, which allows for the distribution of interest that is US Government and the portion that is not US Government.

Box 3 on the  Federal interest entry is inaccurate in that it and the broker-supplied amounts (Fidelity) only account for saving bonds and treasuries.  In Maryland interest on several agency securities is also exempt from state taxes.  The interview provides no way of deducting the agency interest from MD taxable income.

[stanrubin301]

I suggest overriding the state amount for US Government interest directly on the form.  It does not appear TurboTax handles deductions for state interest correctly.  This appears to be a problem in multiple states.