How do I claim city and county tax refund for Kentucky?

[dayakhalsa32]

Hi all, 

What if I work 100% from home in Tennessee for an employer in KY?

thanks

[Hal_Al]

@dayakhalsa32  said "What if I work 100% from home in Tennessee for an employer in KY?"

I assume your employer withheld city/county tax and you asking if you can get it refunded.  You'll have to contact the city/county tax dept for an answer. .  If you normally worked in KY, but are home because of covid, the answer is probably no. 

[DanielV01]

@dayakhalsa.  Different KY localities have different policies, (none of which can be resolved with TurboTax software, unfortunately).  If you were not working inside of the county, you can, in fact, get a refund for mistaken withholdings.  You will want to contact both the local taxing district as well as your employer, as they may well have to sign off on the errant withholdings being a mistake so you may be refunded.  And if you are working from home due to Covid, as @Hal_Al mentions, it might not be possible to get a refund, depending on that locality's specific COVID policy.

[taxes_due]

Hello, so I did get a refund from a County (local tax) in Kentucky for working from home for most of 2020 and they sent me a 1099-G this year for the exact amount that was refunded.

Also I did not pay anything back to Indiana, since i filed the refund after i filed taxes in 2021.

How do I adjust that on my taxes this year for 2021 (1099-G) and do I have to since i did not pay local tax to Indiana in 2020 ?

I am planning to get that refund again because I worked from home all 2021. Do I need to ask for refund again or can I claim that in my 2021 taxes ?

Also, the Kentucky County tax rate was/is a lot more than Indiana county local tax I live in.

Thanks!

[KrisD15]

I am not sure I follow, 

would you please clarify.

Are you asking how you claim a city and/or county tax refund (as income) on your Federal 1040? 

If so, you only need to report the 1099-G if you Itemized Deductions on your 2020 Federal return. 

Kentucky and Indiana have a "Reciprocal Agreement" between them, so you should only be paying state tax to the state in which you live. City and County tax doesn't apply since the agreement is only between the states. You still need to pay city and county tax. 

I assume county tax is withheld from your pay. You can file a county tax return to try to get some of that tax refunded. If I understand you correctly, you are reporting that as income on your state return?  You don't need to report that as income on your state return, you never claimed it as a credit or deduction, it is just a return of your money. You were already tax on your income BEFORE the county tax was withheld. You don't want to pay tax on what you get returned to you. 

Indiana should not give you a credit for the county tax you paid, they only give credit for other STATE tax paid. 

[taxes_due]

sorry, not asking how to claim. Already claimed w-1 ree (Employers are required to withhold Occupational License Fees/Taxes from the gross salaries) for 2020 in 2021 taxes. 

Asking if I have to pay it back to Indiana since I did not see any local tax deduction on my 2020 w2.

Planning on doing the same for 2021 in 2022.

[AmyC]

Your IN return will generate your local tax. When it asks if you paid taxes somewhere else, mark no since you are having those refunded directly to you. You will see the summary when you get to Take a look at Indiana credits and Taxes.

[DanielV01]

@taxes_due  What @AmyC states on her response is absolutely correct for 2021.  Indiana reconciles county tax as part of the state return, and because local tax it is not part of the reciprocal agreement with Kentucky, they do provide a credit for out-of-state local taxes paid, limited up to the amount of local tax you would pay based on the county where you live.  As @KrisD15 mentions, this is separate from the state reciprocal agreement.

So for 2021, not reporting the taxes you paid to Louisville (I know it's Louisville by the form you mention) is the best way to set things straight with Indiana to determine your county tax if you are counting on having all of the Louisville local tax withheld refunded to you.  Everything will calculate correctly for you.

For 2020, you will need to file an amended return with Indiana to release the credit you claimed for local taxes paid to another state on Schedule 6.  If Louisville tax withheld was greater than your county tax rate, then you are correct that you will not have to pay the entire refund back.  Also, if you had to pay a second local tax (Shively, Jeffersontown, or St. Matthews, for example), you can claim those taxes paid towards a credit of Indiana local taxes if you did not receive a refund for those taxes.  If applicable, this will lower what you will pay back to Indiana.

This Help Article will provide assistance on how to prepare the amended state return:  I need to amend my state return

[awporbb1]

Reciprocal state agreement does not have any bearing on the credit on the Indiana return for local taxes paid outside of Indiana. You take the out of state local tax withheld as a credit on the Indiana return. Geez, this is not rocket surgery.

[awporbb1]

No Kentucky return required UNLESS there was Ky tax withheld. On your Indiana return, you get a credit for the local tax paid in Louisville whatever the county name is, but the credit cannot be higher than your local Indiana income tax on those wages shown as local on you w2.

[PII Removed]

Indiana CPA for 47 years

[awporbb1]

wrong !

[JaniceCL]

If I live in Ohio but work in Kentucky - can I get Kentucky local income tax refunded or claim a credit on the Ohio state tax return?

[JaniceCL]

Live in Ohio and work in Kentucky.  Can I get Kentucky local income tax refunded or a credit on my Ohio state tax return?

[Hal_Al]

Q. Live in Ohio and work in Kentucky.  Can I get Kentucky local income tax refunded or a credit on my Ohio state tax return?

A. No.

The reciprocal agreement, on state taxes, does not apply to KY city or county tax.  They are allowed to withhold that from your pay.  You cannot get a refund from the KY city or county.  You also cannot get a credit on your Ohio state return.

But if you live in an Ohio city with a tax, they may give you a credit or partial credit. Many do.  You need to check with your city.

If you are subject to Ohio School District Income Tax (SDIT), you can not get a credit, for KY local taxes withheld, on an SDIT return.