2 part year state returns

[Michiganma]

Hello,

Need to understand how to enter, and in which order, Part year state returns for Indiana and Michigan (reciprocal states for tax purposes).  I lived 6 months in Indiana and earned income from my employer there.  Moved into Michigan half way thru the year and continued employment with the Indiana company, remotely.  I am now a Michigan resident and will continue to derive 100% of my income from the Indiana company.   I paid Indiana state income tax the whole year of 2024 and have since changed my withholding to Michigan.  Please tell me if it is correct to file Part Year Resident returns for both states?

[KeshaH]

Yes, you will need to file part-year resident returns for both states.

You'll file the Indiana return and only report the income that you earned while a resident of Indiana. Since Michigan and Indiana have tax reciprocity, you do not owe tax to Indiana for the time that you lived in Michigan - even though you worked in Indiana.

You'll also file the Michigan return and only report the income that you earned while a resident of Michigan. This income is only subject to tax in Michigan, so you won't qualify for a credit for taxes paid to another state. You should be refunded by Indiana for the tax you paid in Indiana on the income you earned while a Michigan resident.

Since the returns are not dependent on each other, you can file them in any order. I recommend requesting that your employer stop withholding state tax for Indiana. If they'll withhold for Michigan, that would be best. If not, you should make estimated payments to Michigan to avoid a balance due at tax time.

[Michiganma]

Thank you so much for your help!  I will now feel confident about the process!

[Michiganma]

I have completed all calculations and put them into Turbo Tax but a credit is showing up on my Michigan return for taxes paid to Indiana.  The credit is for local IN taxes and off one of the W2s from the primary taxpayer.  The primary taxpayer had 2 W2's: one for IN and one for MI but none of his income had to be divided.   The spouse's income was 100% from IN, taxed all 12 months IN,  but 50% earned while a resident of Michigan.  I thought that no tax credit was allowed due to reciprocal state status, but are the local taxes eligible for the credit?  Not sure why TT is including local county tax from IN and state taxes paid on primary taxpayers W2 from IN as a credit on the MI return.  Please advise.

[Michiganma]

I have completed all calculations and put them into Turbo Tax but a credit is showing up on my Michigan return for taxes paid to Indiana.  The credit is for local IN taxes and off one of the W2s from the primary taxpayer.  The primary taxpayer had 2 W2's: one for IN and one for MI but none of his income had to be divided.   The spouse's income was 100% from IN, taxed all 12 months IN,  but 50% earned while a resident of Michigan.  I thought that no tax credit was allowed due to reciprocal state status, but are the local taxes eligible for the credit?  Not sure why TT is including local county tax from IN and state taxes paid on primary taxpayers W2 from IN as a credit on the MI return.  Please advise.

[Hal_Al]

The reciprocal agreement does not apply since you are working remotely.  It also doesn't apply for part year residents. 

On you part year IN return, you claim a refund of both the state and country tax withheld after the move. 

If you had physically worked in IN, after the move, the MI credit for county tax would be correct.  But. in your case it is not. 

@Michiganma said " The spouse's income was 100% from IN, taxed all 12 months IN"

That's not correct.  The remote work is not considered IN source income.

[Michiganma]

So just to clarify, I just basically figured the income attributable to each state based on days worked and residence status.  Indiana collected state tax from me for 12 months as withholding was not changed to Michigan until 2025.  I have shown all the payroll IN state tax as credit on my part year resident IN return.

On the MI part year return I do not get a credit for the IN state tax or IN county tax, as TT is showing it so I need to figure out how to fix that.  I am filing the part year return and have taken the remaining income not claimed on my IN return and claiming it as MI income.  

How can I get TT to reflect this?

[AmyC]

Yes, each state is part year so the income earned while living there is on each state return. You should be getting a refund from IN and owe MI. Verify that you are filing a part year return and not a resident return for Mi.

As you go through, you can select other state tax credit. You do not want to do that. You want to delete the other state credit form.

If you are using:

Online: see How do I view and delete forms in TTO?

 Desktop: If you are working in the cd/download TurboTax program:

1. On the top right, there is a FORMS button. 
2. Click on FORMS.
3. Locate the form you want to delete.
4. Click on the form name.
5. Below the form, bottom left, select DELETE FORM button.