@Benja said: "I thought that because of the reciprocal agreement that we would only pay taxes in the residential state"
That is correct. 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 thinking you need to file an KY return.
IN has a reciprocal agreement, on wages, with KY. No KY state taxes are withheld or due and you do not need to file a KY return. But IN will tax you on your KY income.
If KY state tax was mistakenly withheld, you have to file a KY return to get a refund. You should ask your employer to stop withholding so you don't have to file an KY return every year.
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
However the reciprocity agreement does not apply to local city or county taxes. You are not required to file a local city return, but you are also not entitled to a refund of the city withholding (box19 on your W-2), unless there was an error in the amount.
Most IN counties (but not the state) allow a credit, or partial credit for tax paid to a KY city/county. That will come up in the IN state interview. (For details, see:
https://ttlc.intuit.com/community/state-taxes/discussion/i-see-no-separate-question-for-school-taxes...
