I was always under the impression that states couldn't tax interest income paid by the federal government and vice versa. For the first time in my life I am living in a state with a state income tax. I just completed Turbo Tax for Arizona and it did not ask me how much income was interest from the Federal Gov't. Documentation with my 1099s from Fidelity and Vanguard showed how much was US gov't interest.
Am I wrong on my impression?
States do not tax the direct obligations of the United States.
That includes US Treasury bonds/notes//bills, US Savings Bonds, Federal Home Loan Mtg, Sallies Maes and other direct obligations.
But other US-related instruments and interest paid in the course of operations mih be taxable, though each state makes its own rules.
Such interest payment can come from Ginny Maea, Freddie Macs, interest paid to you when receiving a claim settlement against the government, and that includes interest paid to you by the IRS in connection with your claim for refund, perhaps on an amended return.
In the vice versa category, Federal ordinary income tax does not apply to municipal interest of states, their subdivisons, or certain multi-state Authorities.
But for Alternative Minimum Tax, municipal bond interest of Private Activity Bonds is taxable (Perhaps Commonwealth Edison convinces the state to issue Munis whose funds will be used to build a privately-owned electric generating plant)
I just completed Turbo Tax for
If you believe your software does not allow excluding direct US Gov't obligatons from state tax, well, that sounds wrong to me, but then I do not use TT. I'll bet they provide a method for excluding this income.
Before you complete "Turbotax for Arizona", you have to complete "Turbotax for federal". If you correctly indicate in which 1099-INT box the interest was reported, you should be OK.
-Mark Bole
"The IRS has not issued a definition for taking a position."
Not a blanket rule but often true.
Clearly this goes on form 140, Line C19. I do know know how Turbo Tax prompts you for it.
Steve
Line 3 of 1099-INT is subject to federal tax and free of state tax.
The 1099-Int supplied by the IRS for interest paid by the US Treasury due to an amended tax return that resulted in a refund does not have the various boxes that some 1099-Int forms have. It just says "Total Interest Paid...".
It's fully taxable, same as Box 1 of 1099-INT.
The IRS issues a Form 1099 for this interest, which apparently is a form not available to ordinary mortals. The boxes are not numbered, you are correct.
Art Kamlet correctly answered this in the very first reply. "Interest paid by the U.S. government" is more encompassing than the specific category of interest that is excluded from taxation by the states.
-Mark Bole
"The IRS has not issued a definition for taking a position."
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