It would be so useful to know what state or local taxing authority the credit for local taxes paid is being generated.
All of these taxes withheld are reported in boxes 18 through 20 of a W-2. Correct?
(1) The number that is generally used is the Local wages in box 18 for the same line as the Local income tax withheld. Without seeing the W-2, it is unclear why box 1 income would report $4,000 and box 18 would report $3,500.
(2) This appears to be correct.
(3) Generally you report the local resident taxes paid to compare against the local nonresident taxes paid to make sure that you paid at least as much nonresident as resident taxes paid. The credit will not be more than what was paid in resident taxes paid. I would think you would report the $40. It appears that the credit generated should be $20.
Hope that this helps.
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