Q. KY is a reciprocal, so do I still have to complete a nonresident state return too?
A. No, unless KY state tax was erroneously withheld. The reciprocal agreement does not apply to city and county income tax. KY cities and counties are allowed to withhold that tax from your pay. You cannot get that refunded.
Q. If I cannot get my KY local taxes money back, then I can claim it on out of state local taxes in Indiana?
A. Yes. You cannot get a credit, for KY local income tax against the IN state tax. But most IN counties do allow a tax credit. The IN county income tax is filed as part of the IN sate return. If your county is one that allows a credit, it should come up in the TurboTax state interview.
The allowable credit is equal to the lesser of:
The amount of income tax actually paid to a locality in another state;
The amount of adjusted gross income taxed by the locality outside of the state of Indiana
multiplied by the county rate to which the taxpayer is subject; or
The amount of county tax due on the Indiana return
Reference: https://www.in.gov/dor/files/ib28.pdf
