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State tax filing
To claim the exemption, you must file Form IL-W-5NR, Employee's Statement of Nonresidence with your Illinois employer, to certify residence in one of the covered states. However, this will not affect your 2016 state income tax filings
If you maintained your permanent residence in IA and your only IL income is from wages, then you will not have an IL nonresident state income tax filing (unless IL withholding were taken out of your pay (see below)). You will instead include all income (including IL source wages) on your IA resident state income tax return.
IA and IL have what is called a state reciprocal agreement. This allows nonresidents to not have state withholding taxes taken out for wages earned in the state.
Since you will not have an IL state income tax filing, just check that you selected "no" to " Did you make money in any other states?" under the Personal Information section in TurboTax (see screenshots)
You can get rid of a state without clearing your federal return by just deleting the state from your list of states under the "State Taxes" tab.
Please note that you will not have a delete option until you actually start working on the state. Select that you want to start the state return under the state taxes tab. The system will start calculating. Then go back into the state tab at the top of the screen and you should now get a choice for that state to either continue or delete. You won't be charged for just starting the state return. You would only be charged (if applicable) when you are getting ready to file.
In order to get the full refund of your IL state income tax withholdings, you will need to file a nonresident IL return but report zero "0" income from IL (even though you do have IL wage income). You need to file your IL return this way because IA does not allow a credit for tax paid to a reciprocal state on wages, salaries and commissions. If tax was withheld by a reciprocal state (IL), you must file directly with the state for a refund of those taxes. You must mail in this IL nonresident state income tax return and include your state W-2 information. You will want to include an explanatory statement with your IL return stating your situation (that your IL employer withheld IL taxes from your wages in error due to a reciprocal agreement with IA).