State Reciprocity Question

Forum|Forum|3 years ago
April 15, 2023
2 replies
10 views

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?

Best answer by TomD8

"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.

Hal_Al

Level 15

@Kimber1968

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

Kimber1968Author

Level 2

@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!

TomD8

Alumni - Champ

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.

**Answers are correct to the best of my ability but do not constitute tax or legal advice.