Because Illinois, the state where you live, does not have a reciprocal agreement with Indiana, the State where you work, your Indiana employer is obligated to withhold wages from your paycheck Additionally, you must pay taxes, as a non-resident, to Indiana because that State is where you perform services for which you are paid.
However, because it appears you are a non-resident of Indiana, you will get a credit on your Illinois return for having paid taxes to Indiana. In order to ensure that you get the full amount of credit you are entitled, make sure you complete your Indiana non-resident return before you complete your Illinois return. When it is time to complete your Illinois return, you will be asked whether you paid taxes to any other State. Answer this question with a "yes" and the follow the steps to enter the amount of taxes you paid to Indiana. This type of credit will help to reduce the taxes you owe to Illinois.
Even though you will get some credit for paying taxes to Indiana. the credit will not be large enough to eliminate your tax obligation to Illinois. Indiana's tax rate is 3.23% whereas the tax rate for Illinois is higher, at a flat rate of 4.95%.
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