Link and Learn – Income – Tax Exempt income reported on 1040?

[Elise Lebeau]

Can someone clarify if tax exempt income has to be declared on 1040?
Here is the question from Link and Learn that says it shouldn’t

Certification Warm Up: Question 1 of 2
Marie and her husband Arturo have three Forms 1099-INT:

1) State of Washington Bond interest $300
2) Epping Credit Union, $600
3) Brenton Savings and Loan, $960
How much interest income should they report on Form 1040, Schedule B, Part I?
A $1,560
> B $1,860
C $300
D $1,260

Incorrect. Interest on municipal bonds is exempt from federal income tax. Try again.

But this section in Pub 4491 – Income – What interest is tax Exempt? says it should be reported

Although tax-exempt interest is not taxable, it must be reported on Form 1040. Tax-exempt interest is used in calculating the taxability of some income items, such as Social Security benefits.

[CASH Oregon Moderator]

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.

[Elise Lebeau]

Ah yes, I am struggling to understand the relationship between the IRS forms/schedules and Tax Slayer input fields. I don’t have a good mental map of what things go where so far.

Thanks for the detailed answer!

[CASH Oregon Moderator]

You are welcome. You are not alone in trying to understand the relationship. The new forms from last year make it challenging for everyone! The 4012 is the best resource for figuring out the “translation” between the IRS and TaxSlayer forms.

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