Your resident state taxes all income but gives a credit for income taxed by another state. Your resident state provides roads, police, etc so they tax your income. Please carefully follow these directions to prepare the states in a special order. You may need to delete both states and begin again.
- First, prepare your part year resident VA return. Since all income was earned in VA, all income is taxable to VA. This creates your tax liability for VA state.
- Then prepare your part year resident state NC return and it will generate a credit for your income already being taxed in VA for the same time period.
- The credit will be the lower of the state tax liabilities on the same taxable income. You may owe your resident state, if they have a higher tax rate along with differences in how the taxable income is calculated.
It isn't possible for the program to create a credit before it knows the liability. Your returns may be wrong if you do not prepare the states in this order.
You get credit for the lower state tax on the lowest taxable amount.
- Each state calculates taxable income differently.
- Each state has its own tax rate/ system.
- You get the lowest of both categories as a tax credit.
@DShellB
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