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Reporting Investment Income on Your Taxes: Foreign, U.S. Government, and State

Investing in a globally diversified portfolio means that your taxes will have an added layer of complexity. Learn how to report income from state, government, and foreign sources.

Articles by Betterment Editors
By the Editorial Staff Betterment Resource Center Published Jan. 07, 2019 | Updated Apr. 21, 2020
Published Jan. 07, 2019 | Updated Apr. 21, 2020
4 min read

TABLE OF CONTENTS


With Betterment, you can automatically import your tax information into TurboTax, H&R Block, and TaxAct. The soonest you can start importing is Feb. 18, 2020. Note that we do not currently support integration with Quicken.

If you need your tax forms, you can download them in your account. All tax forms will be ready to download by Feb. 18, 2020.

Betterment is not a tax advisor and the information provided should not be construed as tax advice, but should be used for informational purposes only. If you are not comfortable making these calculations, we suggest getting professional tax assistance. Please consult a qualified tax professional or the IRS to determine the rules that apply to your individual tax situation.

How can I find my foreign-sourced income?

As reported on your 1099-DIV, your Betterment accounts may have earned foreign-sourced income via dividends, resulting in foreign taxes. This is due to the fact that your taxable investment accounts may be invested in foreign stock and bond ETFs, since Betterment’s portfolio is globally diversified.

When filing your tax return, you may be required to report foreign-sourced income, which means you’ll need to report the total of all the foreign-sourced dividend income that you earned. Betterment has calculated this figure for you, which you can find on your Supplemental Tax Statement in the Documents section of your account under the Tax Forms tab.

Please note that while most customers will receive a Supplemental Tax Statement, a small subset of customers will not, due to various holdings that are not generally included in our main portfolio strategies here at Betterment. If you did not receive a Supplemental Tax Statement and you need more help, please email taxseason@betterment.com.

If you’re using TurboTax, entering your foreign ordinary dividend amount is likely to look like this:

TurboTax Foreign Ordinary Dividends Screenshot

 

If you’re using TurboTax, entering your foreign qualified dividend amount is likely to look like this:

TurboTax Foreign Qualified Dividends Screenshot

 

A related step—which tax software will likely prompt you to answer—is to identify which foreign country your income came from. If all of your foreign-sourced income resulted from investments with Betterment, because we use regulated investment products (ETFs), you can simply report this income as “RIC”—a regulated investment company.

Here’s an example of how this question is asked in TurboTax:

Screenshot of turbotax dividend question

Please consult a qualified tax professional and refer to IRS Publication 514, IRS Form 1116, and IRS Publication 17 to determine the rules that apply to your individual tax situation.

How can I find my state-specific municipal bond ETF interest?

A portion of the dividend income from your municipal bond ETF holdings may be exempt from state income tax, depending on your state’s tax laws. Betterment has calculated this for you, based on your state of residence listed within your account. Simply head to the Documents section of your account and then click the Tax Forms tab to download your Supplemental Tax Statement, which will contain this figure.

Please note that while most customers will receive a Supplemental Tax Statement, a small subset of customers will not, due to various holdings that are not generally included in our main portfolio strategies here at Betterment. If you did not receive a Supplemental Tax Statement and you need more help, please email taxseason@betterment.com.

If you’ve moved and your state of residence on file with us was incorrect, and you wish to calculate your state-specific percentages of your municipal bond ETF holdings, please consult materials from the fund provider. To help, here are some resources below to find more specific information about the holdings of various municipal bond funds which may be used in your portfolio.

Nationwide Municipal Bond ETFs

  • TFI: SPDRS Tax Exempt Interest by State
    • Go to the “Document” tab.
    • Scroll down to the “Tax Documents” section.
    • Click on “SPDR ICI Tax Summary (Secondary).”
    • Line 62 is TFI and state percentages start in column M.
    • It is useful to freeze panes up to row 14 to be able to see the state and the percentage at the same time.

California State-Specific ETF

New York State-Specific ETF

For TurboTax Users

If you are importing a 1099-DIV and Box 11 (Exempt Interest Dividends) is not $0, TurboTax will show you a screen which asks: “Choose the state where your tax-exempt dividends came from.”

From the dropdown, select “More Than One State.”

Example using Supplemental Tax Statement:

Screenshot of supplemental tax form example

For the out-of-state portion of dividend income, choose any state other than your resident state.

How can I find my U.S. Government interest income?

As reported on your 1099-DIV, your Betterment account may have earned U.S. Government interest income due to bond dividends. This is because your taxable investment accounts may be invested in U.S. Government bonds through bond ETFs, per Betterment’s advice.

Generally, the U.S. Government interest portion of a fund dividend income is exempt from state and local income taxes. However, there are some states (NY, CT, and CA) that have an “asset test” which requires 50% of the fund’s assets to be U.S. Government bonds to qualify for a percentage of the fund’s income to be exempt from state and local income taxes.

When filing your state tax return, you may be required to determine the percentage of the dividend related to U.S. Government interest. Betterment has calculated this figure for you, which you can find on your Supplemental Tax Statement in the Documents section of your account under the Tax Forms tab.

Please note that while most customers will receive a Supplemental Tax Statement, a small subset of customers will not, due to various holdings that are not generally included in our main portfolio strategies here at Betterment. If you did not receive a Supplemental Tax Statement and you need more help, please email taxseason@betterment.com.

If you’re using TurboTax, entering your U.S. Government ordinary dividend amount is likely to look like this:

Screenshot - US government interest question

 

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