KY Reciprocity Agreement

Forum|Forum|6 years ago
March 18, 2020
2 replies
12 views

*Disclaimer* - I am new to tax filing as of this year.

I live in Louisville, KY but work for UPS in Southern Indiana. My filings with TurboTax list $1246 as return from the Kentucky (not received), $468 from Indiana (received). Recently I received a letter from the KY Dept. of Revenue that states:

"Your 2019 Kentucky Individual Income tax return was adjusted to a refund of $16.00...for the following reason(s): Credit for tax paid to a reciprocal state on wages has been disallowed. Our reciprocal agreement provides for taxpayers to be taxed by their state of residence and not the state where the income is earned...You must file a return with the reciprocal state to recover your withholding...Per KRS 131.110, you have the right to protest an adjustment made by the DOR. The protest must be in writing, stating reason(s) for the protest, and submitted within sixty days of the original adjustment. Please include all documentation necessary to support your protest."

I am not sure what I need to do here to recover the rest of that money. I could really use it right now. Are there any experts out there from this area who can point me in the right direction regarding forms, to whom they should be sent, etc.? I'm second-guessing myself here.

Thanks,
Jude Z.

Hal_Al

Level 15

IN has a reciprocal agreement, on wages, with all neighboring states. No IN state taxes are withheld or due and you do not need to file an IN return. But your home state (KY) will tax you on your IN income.

If IN taxes are mistakenly withheld, you have to file an IN return to get a FULL refund of state tax . KY will not give you a credit for tax paid to IN. You should ask your employer to stop withholding so you don't have to file an IN return every year.

However the reciprocity agreement does not apply to local county taxes. You are not entitled to a refund of the county withholding (box19 on your W-2), unless there was an error in the amount. If you are subject to a KY county or city tax, you should check to see if the KY city will give you a credit for the IN county tax withheld. KY does allow an itemized deduction (Schedule A) for local tax paid.

Hal_Al

Level 15

If you got all your IN state withholding refunded, then that's probably all you can get.

The adjustment by KY DOR is probably correct. Review the KY form, see what the bottom line would be if you eliminated the credit you took for IN. If it agrees with DOR, you don't need to do anything. A $1246 state refund seems high.

If you did not get a full refund of IN state tax, you need to file an amended IN return to get the rest.

IN has a specific form (IT-40RNR) for a reciprocal state refund. You might want to try filing that form by hand. It looks pretty simple. Get it here: http://www.in.gov/dor/4733.htm

Disclaimer: I'm in Ohio and not familiar with all the details of KY-IN; but know it's similar to OH-IN and OH-KY rules.