The credit for taxes paid to another state on the same income is used on your resident state because they do not want you to pay taxes twice on the same income. As the resident state all worldwide income must be included. The credit allowed is the lesser of:
- the tax liability actually charged by the nonresident state, OR
- the tax liability that would have been charged by the resident state
For Illinois (IL) the unemployment is fully taxable on your nonresident return. Here is information from the IL Department of Revenue:
- Illinois law provides that unemployment compensation paid by the Illinois Department of Employment Security to a nonresident of Illinois is taxable to Illinois.
Make sure you have selected 'nonresident' for the AZ return and you will see all of the income from your federal return, then a Schedule NR will be part of your IL return. This will prorate the income and then arrive at a percentage of total tax that applies to only the IL income. For this reason it may appear as though you are paying tax on all of the income, when in fact it is a prorated percentage of tax.
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
