2 state returns, part-year resident for IL and NY. IL state taxed on IL earned income, but why did NY tax on all earned gross income (IL + NY)?

[ThomasM125]

New York taxes all of your income earned in and out of state. However, once the tax is calculated, it is reduced based on the percentage of income earned in versus out of state. For instance, if you earned $50,000 in New York and $50,000 in Illinois, New York will tax $100,000 of income. Then, if the income tax was $5,000 as an example, they would subtract 50% of that since only half of the income was earned in New York, so your tax due would be around $2,500.

[ami1201]

Thanks Tom, makes sense. However, Turbo Tax is not applying the credit for paying Illinois taxes. On the NY State summary page, it takes the total income from both states, applies std deduction, then subtracts only the NY portion of taxes paid. What do I need to update to include the credit?

[AmyC]

If you were living in NY and earning money from IL, then you should have a credit for the income taxed in both states. If your earnings were completely separate and match where you lived, no income is being double taxed and you would not have a credit.

[ami1201]

Yes, my situation is the latter... living in 2 states with separate employers in each state. So it seems easy to tax each state return separately. Turbotax did Illinois return correctly, but NY return is including the IL income (so the total income to be taxed is higher) and only subtracting the NY taxes paid. So it says I owe NY taxes when really I dont if it would have included the NY income earned in NY only (same as the IL return). I put part-resident for both, so it should have done both states the same. 

[RogerD1]

All states do have their own rules for how they tax income with some having no income tax at all.  The way that states interact with one another also differs greatly.  Because of this, no two states are going to be entered the same way in TurboTax.

If you look at Form IT-203, the New York taxable income that appears on line 36 is the Federal amount from line 32 less your New York standard or itemized deduction.  This is correct - your total income will get taxed, and that tax will appear on line 38.  However, if your income was allocated correctly, line 45 will be the ratio of your NY income to your Federal income.  That amount gets multiplied by the total tax on line 38 to arrive at your allocated NY state tax on line 46.  As long as your income was allocated correctly to NY in TurboTax, the amount of NY tax will be correct.