Deductions & credits

pk · ‎January 12, 2025

As I had mentioned earlier, most US States do NOT recognize US-Other Country Tax Treaties. Sometime they have their own agreements with the next door country -- e.g. Michigan with Canda, NY with Canada etc.

In your particular case , here are two items to consider :

(1) ----- MI-1040, Line 18: Credit for Income Tax Imposed by Government Units outside Michigan.

Line 18a: Enter the total income tax paid to other government units. If you paid tax to more than one unit, attach a schedule showing the tax paid to each government unit.

Include the amount of income tax paid to:

A nonreciprocal state (Any state other than Illinois, Indiana, Kentucky, Minnesota, Ohio, or Wisconsin)
A local government unit outside Michigan, including tax paid to local units within reciprocal states (e.g., City of Toledo)
The District of Columbia
A Canadian province.

You may not claim a credit for taxes paid on income not included in Adjusted Gross Income (AGI) or subtracted on Michigan Schedule 1 (e.g., rental or business income from another state, part-year resident wages, etc.).

If you claim credit for Canadian provincial tax, you must file a Resident Credit for Tax Imposed by a Canadian Province (Michigan Form 777). Attach copies of your Canadian Federal Individual Tax Return (Form T-1), Canadian Form T-4, Foreign Tax Credit (U.S. Form 1116), and U.S. Form 1040. Your credit is limited to the portion of your Canadian provincial tax not used as a credit on your U.S. Form 1040.

Attach a copy of the return filed with the other government unit(s) to your MI-1040.

Line 18b: Credit amount. If more than one government unit is involved, compute the credit amount for each government unit separately. Then add the individual credit amounts and enter the total on line 18b.

Compute your allowable credit as follows:

Divide your income subject to tax in both states by your income subject to Michigan tax (MI-1040, line 14); then multiply the amount of tax on MI-1040, line 17, by the result.

Your credit cannot exceed the smaller of:

the amount of tax imposed by another government; or
the amount of Michigan tax on salaries, wages, and other personal compensation earned in another state.

(2) MCL - Section 206.255 - Michigan Legislature

206.255 Credit for tax imposed by another state, District of Columbia, or Canadian province; allowance of Canadian provincial credit; maximum credit.

Sec. 255.

(1) A resident individual or resident estate or trust is allowed a credit against the tax due under this part for the amount of an income tax imposed on the resident individual or resident estate or trust for the tax year by another state of the United States, a political subdivision of another state of the United States, the District of Columbia, or a Canadian province, on income derived from sources outside this state that is also subject to tax under this part or the amount determined under subsection (3), whichever is less. For purposes of the Canadian provincial credit, the credit is allowed for only that portion of the provincial tax not claimed as a credit for federal income tax purposes. It is presumed that the Canadian federal income tax is claimed first. The provincial tax claimed as a carryover deduction as provided in the internal revenue code is not allowed as a credit under this section.

(2) The Canadian provincial credit shall be allowed for the 1978 tax year and for each tax year after 1978.

(3) The credit under this section shall not exceed an amount determined by dividing income that is subject to taxation both in this state and in another jurisdiction by taxable income and then multiplying that result by the taxpayer's tax liability before any credits are deducted.

History: 1967, Act 281, Eff. Oct. 1, 1967 ;-- Am. 1969, Act 332, Imd. Eff. Nov. 4, 1969 ;-- Am. 1978, Act 589, Imd. Eff. Jan. 4, 1979 ;-- Am. 1979, Act 30, Imd. Eff. June 14, 1979 ;-- Am. 1982

Note both the instructions and the Statute section does not allow ANY tax credit for taxes paid to a foreign taxing authority ( except for Canadian provinces ).

Does this make sense ?

Is there more I can do for you ?

Namaste Jagpreet ji.

pk