Your assumptions are correct.
File a part-year Illinois and part-year Alabama income tax return and only report the income earned while you were residents of each state. For AL you only have to file Form AL-40 because you did not earn any AL income while living in IL.
Your income allocations sounds fine. TurboTax will automatically transfer your wife’s W-2s to the correct state based on the state code on the W-2s.
Change your withholding. Your employer should not be withholding IL income tax. File Form A-4.
You will get a larger than normal IL refund and owe to AL because you are reporting half a year’s income to AL where no AL tax was withheld. On the flip slip, you are subtracting half a year’s income from IL but the you have a full year’s IL withholding. The withholding has already been sent to IL so it can’t be repurposed to AL.
Consider mailing in your IL return with explanation that your employer did not withhold state tax correctly. Include a copy of your AL return showing that you reported your total income correctly. You don’t have to, but you may get a tax notice from IL later and you’d have to do the same thing. Filing by mail will delay your IL refund so that’s also something to consider.
If you have TurboTax Live, you can get an Expert Review.
Related Resources:
• When I get an expert review in TurboTax Live, should I talk live to a tax expert or get a written re...
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