That is what we have been doing and checking off the box in the informational diagnostics, but for some very odd reason, after last nights updates, Lacerte has made this critical diagnostic. 

In truth, Lacerte should have automatically had this go to a Schedule M adjustment as Kentucky has never hinted that they would follow the fed's in exempting unemployment. 

It's funny that all of the other tax programs have put this as a Schedule M adjustment but not Lacerte, who will tell you that they follow the instructions of the state.  As of this moment, Kentucky has not changed its rule.  So leave this as an informational diagnostic to have us do this instead of a critical to allow us to e-file since we made the change to Kentucky to report it properly.