The answer to your question is that you will need to file both Arizona and Illinois state tax returns, along with your federal tax return. Please allow us a few moments to explain that.
Because
you worked in (Chicago) Illinois, you
will need to report this
income on an Illinois state tax return. In other words, W-2 wages from an Illinois job is Illinois-source income. As you are a
resident of Arizona, this Illinois return will be a nonresident state
tax return. Also, please know that this same basic process will be identical for those who are self-employed and filing Schedule C. Since it wasn't specified in the question whether this working income is W-2 or Schedule C self-employment, we will proceed with this answer under the premise that the income is W-2, simply for need of a convention. If the reality is otherwise, then simply just substitute the term "self-employment" everywhere else a W-2 is seen or written.
As a
resident of Arizona, you will also need to report this very same
income
on your Arizona state tax return, as Arizona taxes all the
income of
its residents, no matter where they go in the world or the source of
their income (for example, in another state or another country).
Thus, you are taxed on the very same wage income by both Arizona and Illinois. Fortunately, however, there is a relief process from this double taxable issue (also called mutually-taxed income). Once you complete your Arizona and Illinois state tax returns, you will be able to claim a state taxes paid credit on your Arizona return for taxes paid to Illinois. This will eliminate (or at least mitigate) the double-taxation burden.
In TurboTax, it is vitally important that you complete your tax returns in the correct order, or otherwise the state taxes paid credit may not calculate properly. That completion order is as follows:1) Do your federal tax return and have it pass an error check
2) Do your nonresident state (Illinois) second, and finish it completely
3) Do your resident state (Arizona) last, and only after following the completion of the first two tax returns.
There is also one somewhat confusing screen that you will find in the Arizona state module, which relates to taking this credit for taxes paid to Illinois. In order to illustrate how to approach this screen, let's assume that your Illinois W-2 wage income is exactly $50,000, and that you previously reported this $50,000 amount on both your federal and Illinois tax returns.
In that case you will want to fill out the relevant TurboTax screen just like in the image shown directly beneath this text; simply click the picture to open. Making this entry in this way is necessary to claiming the Illinois taxes paid credit on the Arizona return (we ran a hypothetical "John Doe" tax return through the TurboTax Arizona and Illinois state programs to verify the mechanical process for this answer).
Finally, you may benefit by viewing the following two TurboTax webpages, which contain many more details on mutually-taxed income:
The answer to your question is that you will need to file both Arizona and Illinois state tax returns, along with your federal tax return. Please allow us a few moments to explain that.
Because
you worked in (Chicago) Illinois, you
will need to report this
income on an Illinois state tax return. In other words, W-2 wages from an Illinois job is Illinois-source income. As you are a
resident of Arizona, this Illinois return will be a nonresident state
tax return. Also, please know that this same basic process will be identical for those who are self-employed and filing Schedule C. Since it wasn't specified in the question whether this working income is W-2 or Schedule C self-employment, we will proceed with this answer under the premise that the income is W-2, simply for need of a convention. If the reality is otherwise, then simply just substitute the term "self-employment" everywhere else a W-2 is seen or written.
As a
resident of Arizona, you will also need to report this very same
income
on your Arizona state tax return, as Arizona taxes all the
income of
its residents, no matter where they go in the world or the source of
their income (for example, in another state or another country).
Thus, you are taxed on the very same wage income by both Arizona and Illinois. Fortunately, however, there is a relief process from this double taxable issue (also called mutually-taxed income). Once you complete your Arizona and Illinois state tax returns, you will be able to claim a state taxes paid credit on your Arizona return for taxes paid to Illinois. This will eliminate (or at least mitigate) the double-taxation burden.
In TurboTax, it is vitally important that you complete your tax returns in the correct order, or otherwise the state taxes paid credit may not calculate properly. That completion order is as follows:1) Do your federal tax return and have it pass an error check
2) Do your nonresident state (Illinois) second, and finish it completely
3) Do your resident state (Arizona) last, and only after following the completion of the first two tax returns.
There is also one somewhat confusing screen that you will find in the Arizona state module, which relates to taking this credit for taxes paid to Illinois. In order to illustrate how to approach this screen, let's assume that your Illinois W-2 wage income is exactly $50,000, and that you previously reported this $50,000 amount on both your federal and Illinois tax returns.
In that case you will want to fill out the relevant TurboTax screen just like in the image shown directly beneath this text; simply click the picture to open. Making this entry in this way is necessary to claiming the Illinois taxes paid credit on the Arizona return (we ran a hypothetical "John Doe" tax return through the TurboTax Arizona and Illinois state programs to verify the mechanical process for this answer).
Finally, you may benefit by viewing the following two TurboTax webpages, which contain many more details on mutually-taxed income: