When I filed with HR Block last year, the lady told me I would get the locality/city taxes I paid back with my state refund. I did. This year, since I’m doing it myself, on TurboTax, I can’t figure out how to file correctly to where I get that back again. I have it added under “Other State Refund Deducted,” but it’s still telling me I’m only getting $100 back when I paid over $200 in.
Yes, you can do this in TurboTax. Illinois does allow you a credit for taxes on wages paid to another locality (even when there is a reciprocal agreement), as long as there is not a city/local return. A KY locality does not require a tax return for wages because the employer is required to deduct and remit the exact amount of tax for the locality in question. The following is taken from the 2017 Schedule CR IL-1040 Instructions - Illinois Department of Revenue where this credit is reported (click on above link, reference on page 3, line 51):
Enter the total amount of income tax paid to other states on Illinois base income (see instructions). Note: Do not enter the tax withheld from your Form W-2 unless you are including tax paid to a city or local government that does not require you to file a tax return.
Illinois may require proof, which would be the copy of the W-2 that shows the amount of local tax withheld.
To enter this in TurboTax, you will go to the Illinois resident return, scroll screens until you are prompted "Let's see how we can save you more money in Illinois". Then you will note the following four screens and entries:
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