Most of the dividend income you earn is taxable by both the federal and state governments. However, some types of dividends may be exempt from federal and/or state income tax. We use the State Dividend Worksheet to reclassify your dividend income so that it will receive the proper treatment under the state's income tax rules. If you were a nonresident or part-year resident, we also use the worksheet to allocate your dividend income according to state tax rules for your resident status. We then carry the amounts from the worksheet to your state tax forms.
When you prepared your federal return, you entered information relating to each dividend item on Form 1099-DIV, on Schedule K-1 (Partnership/S Corporation), or on Schedule K-1 (Estate/Trust). Based on the entries you made, we've completed Part I of the State Dividend Worksheet.
You should review the information entered on Part I of the State Dividend Worksheet. You'll notice each dividend item contains at least two lines. The first line contains the name of the payer and the gross amount of dividend income reported for federal purposes, less any federal adjustment for nominee dividends. The following lines contain the state classifications for each item, as well as the gross amount of the income and the amount taxable in your state. You should carefully review the classification of your dividends and make sure it's consistent with the state types described.
If you were a nonresident or part-year resident, you should complete Part I as if you were a full-year resident, then proceed to Part II to allocate your dividend income between your residency and nonresidency periods.
Note: If you invested in mutual funds, you should have reported any income earned by the funds, including any exempt interest dividends, on federal Form 1099-DIV in our federal program. We'll automatically carry this information to the State Dividend Worksheet.
To assure that each dividend item receives the proper tax treatment on your state return, you should check that the state type assigned to each item is consistent with the descriptions below.
Regular dividends are fully taxable for state income tax purposes and are generally reported in box 1 of Form 1099-DIV, Line 6a of your Partnership Schedule K-1, Line 5a of your S Corporation Schedule K-1, and line 2a of Schedule K-1 (Estate/Trust).
Note: We've carried any restricted stock dividends entered on Form 1099-DIV to the State Dividend Worksheet and entered them as nontaxable. We entered them as nontaxable because this type of dividend is included as wage income on your federal return and is not treated as a taxable dividend.
Dividends from a mutual fund's investment in U.S. government obligations are taxable for federal income tax purposes but are exempt from state income tax. The portion of the dividend that is exempt in your state appears on the annual statement you receive from your mutual fund. You should have entered this amount on your federal income tax return on line a of the Mini-Worksheet for Box 1 of Form 1099-DIV, the second box on Line 6a of your Partnership Schedule K-1, the second box on Line 5a of your S Corporation Schedule K-1, or the second box on Line 2a of Schedule K-1 (Estate/Trust). Type 2 dividends include dividends earned by mutual funds investing in U.S. Treasury bills and notes, and U.S. Savings Bonds.
Dividends from a mutual fund's investment in municipal bonds issued by a state or local government agency are exempt from federal income tax. These dividends are reported on line a of the Exempt Dividend section of Form 1099-DIV on which the checkbox for tax-exempt dividends is checked.
Generally, these bonds are exempt from state income tax only in the state that issued the bonds. If you had any federal dividends, you were asked to enter the amount of the dividends that are exempt from state tax in the state in which you were a resident for the entire tax year.
Dividends from a mutual fund's investment in municipal bonds issued by a state or local government agency are exempt from federal income tax. We carry the amount of these dividends from line c of the Exempt Dividend section of Form 1099-DIV.
If you were a part-year resident or nonresident, you should enter the amount of dividends from mutual funds investing in municipal bonds issued by the state for which you are filing this return directly in the corresponding space in Part I of the State Dividend Worksheet. You can generally find this information on the Form 1099-DIV or substitute Form 1099-DIV that you received from the payer of the interest or the broker holding the obligations on your behalf.
Dividends from a mutual fund's investment in municipal bonds issued by any state other than your state of residence are generally subject to income tax by that state. We automatically calculate the amount of the dividends as the difference between the amount of federally exempt dividends from this source and the amount of Type 3 dividends from the same source.
Note: If you were a part-year resident or nonresident, we calculate this amount for you as if you were a full-year resident, and you must complete Part II of the State Dividend Worksheet to determine the actual dividends taxable in the state for which you are filing this return..
We total the amount of each state type on the State Dividend Worksheet and then carry these totals to Part II, the Dividend Income Summary "Full-Year Resident" column, on page 2. Be sure to review this summary as your dividend income for the state is carried from there to your state return.
If you're filing this state return as a nonresident or part-year resident, the amount in the "Resident Period" column should include all dividend income earned while you were a resident. The amount in the "Nonresident Period" column should only include dividend income you earned in connection with a business, trade, profession, or occupation that you carried on in the state while you were a nonresident.
If any of the amounts on your State Dividend Worksheet are incorrect, do not fix these amounts by overriding the amounts we calculate for you. Because we've carried all of the information necessary to complete Part I of the State Dividend Worksheet (other than the amount of Type 3 dividends for part-year residents and nonresidents) from your federal return, you should make any changes to this information directly on Form 1099-DIV, Schedule K-1 (Partnership/S Corporation), or Schedule K-1 (Estate/Trust) in the federal program.
Similarly, if you change any of the dividend items in your federal return after you've completed the State Dividend Worksheet, you should re-check the state worksheet to assure that the changes are properly reflected on the State Dividend Worksheet.