Q1. Yes, because she is a CT resident, she will need to file a return that includes income from all states and sources even if it was not earned in CT. Filings the D-40B will get her the refund from DC. She basically will need to file 2 returns.
Q2: So does she need to amend her 1040 returns for DC & CT from last year... or do we let it ride? Amend why? Was something not included on the return? IF something was not included or incorrect on the return, then yes, you would need to amend. If you did not include the MD income on the CT return, that needs to be included as well.
Q3: Last year I reported her UTMA dividends on my own taxes (again, a small amount), and didn't even think that they would be reported on hers because of the small earnings. So do I need to amend my own return from last year as well? If she filed a return last year, then all of her earnings should have been included on her return and none of her earnings should have been included on your return. So, yes, you would need to Amend Your Returns to put the income on the proper return.
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