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Good question Elise,
We used to go over the 1040 in the initial class, but last year IRS had to make a new short form with schedules, and I think we stopped going over the 1040. Something for the training committee to think about because we should know that TaxSlayer is putting data in the correct place.
But that doesn’t answer your question: Yes, tax-exempt interest is reported, It goes on 1040 line 2a. Taxable interest is reported on line 2b and comes over from Schedule B. So the question was “How much interest income should they report on Form 1040, Schedule B, Part I?” and that would just be taxable interest.
Take a look at Tabs B-1, and D-7 thru 9 in Pub 4012.