Kentucky state income tax for Illinois resident

[oi2]

We live in Illinois but my daughter goes to college in Lexington, KY. She has IL drivers license, but rents a house in Lexington and works in Lexington as intern. My understanding is that my daughter should be considered full time resident of IL. The company she works for withheld state income taxes and payed those to KY. My understanding is that because Illinois and Kentucky have reciprocal agreement, the company should not have payed those income taxes to KY, but to IL. Now my daughter owes those taxes to IL. Can she claim she was a Kentucky full time resident and file only KY tax return? If not, what should be done to transfer the already payed state income taxes from KY to IL?

Thanks   

[Hal_Al]

Q. Can she claim she was a Kentucky full time resident and file only KY tax return?

A. No. She must file an IL resident return.

Q.  If not, what should be done to transfer the already payed state income taxes from KY to IL?

A. That can't be done. She files for a refund from KY, Then pays tax to IL.  She may even owe a late payment penalty.

KY has a specific form (740 NP-R ) for a reciprocal state refund. Rather than paying TurboTax for KY software, you should try filing that form by hand. It looks pretty simple. 

https://revenue.ky.gov/Forms/740-NP-R.020521.pdf

In the personal info section, when it asks if you made money in another state, answer NO, per the reciprocal state instructions, on that page. This will prevent TurboTax from generating the KY program. 

The reciprocity agreement does not apply to local city or county income taxes. You are not required to file a local KY return, but you are also not entitled to a refund of the city/county withholding (box19 on your W-2), unless there was an error in the amount.

Her employer may be unwilling to withhold IL tax, but she should ask them to stop withholding KY state tax. Give them KY form Form 42A809

[oi2]

Thank you very much for the detailed and clear explanation.