topic Re: State Reciprocity Question in State tax filing

State Reciprocity Question

Kimber1968 — Tue, 24 Feb 2026 04:59:08 GMT

One last question, I believe maybe I am finally understanding this mess! For 2 reciprocating states, if the tax rate amount is higher in the nonresident working state (4.25%) than the resident state (3.23%), the lesser percentage calculated will be the credit received in the home state. What happens to the remainder of the monies taken out in the nonresident state? $780 was taken out but only $595 was credited. What about the remaining $185 that was paid to the non-resident state?

Re: State Reciprocity Question

Hal_Al — Sat, 15 Apr 2023 13:33:52 GMT

@Kimber1968

Your discussion is spread out over multiple threads (posts). Try to keep the discussion to one thread.

Re: State Reciprocity Question

TomD8 — Sat, 15 Apr 2023 13:39:27 GMT

In a reciprocal situation, W2 income is not taxed by the non-resident state. Thus there is no "other state credit" to be taken. If taxes were mistakenly withheld by the non-resident reciprocal state, the correct procedure is for the taxpayer to file a non-resident tax return with that state, allocating zero income to that state. This will result in a full refund of the incorrectly withheld taxes.

In reciprocity situations, W2 income from the non-resident state is taxable only by the resident state.

Re: State Reciprocity Question

Kimber1968 — Sat, 15 Apr 2023 14:46:47 GMT

Thank you @TomD8. I went back last night and recalculated the two states, this time doing the nonresident state first. You are correct, MI is refunding everything back. Due to MI having a higher tax rate than IN, the credit from IN is $185 less than the refund. What will happen to the remaining refund then?

Re: State Reciprocity Question

Kimber1968 — Sat, 15 Apr 2023 14:49:58 GMT

@Hal_Al Oh wow, I'm sorry! I didn't realize I was doing that. Ugh, I was just trying to word my subject well enough to get a solid answer to my questions. Thank you for bringing it to my attention!

Re: State Reciprocity Question

TomD8 — Sat, 15 Apr 2023 15:06:15 GMT

"Due to MI having a higher tax rate than IN, the credit from IN is $185 less than the refund."

Since you actually owe no tax to MI (assuming it is your non-resident state), there is no credit to be taken on your IN return. Instead, MI will send you a refund for all of your MI withholding.