Indiana Resident with Non Resident IL income

[RLCPEC1976]

Order of entering 2021 information   

1. Federal 

2. Nonresident state IL 

3. Resident State IN  

Tax withheld by IL   $2,119

Actual due to IL for 1 day physically worked in IL   $13

Refund expected from IL   $2,106

Sch 5 Line 10 shows $1,361 OM Withholding  - matches W-2’s

IN Sch IT-2210 Shows $1361 Withholding Credit and $205 Credit 

On IN Information about IL 

Tax from IL Return #13

Tax paid to IL    Should this be withholding $2,119  or Actual due $13 ?     **1, **2

Taxable Income from IL Return $253

IL income taxed by IN   from IL w-2 $44,859

**1 When tax paid to IL is $13 on Sch IT 220 line 12 is <> 0  and results in penalty of $99 added

The amount due less the penalty looks reasonable.  ($2,037 - 99 - $1938)

 when compared to  (65,177.32 IN W-2 * 3.23% = $1099.22) 

**2  When tax paid to IL is withheld amount ($2,119) the IN tax due changes to $502 and is less than expected ($1938)  however Sch IT 2210 line 6 is < 1000 resulting in not penalty 

IN Information Bulletin #28 (Feb 2022)  

Page 4 VI “ Taxpayer may take credit for taxed paid to other states.  Credit  limited to amount of  IN Adjusted tax due

Page 6  VIII. Withholding requirements for Indiana Residents with out-of state income. 

“Likewise, Indiana local income taxes should be withheld only to the extent that the employee’s Indiana local income tx liability exceeds the local taxed withhold for the employee’s locality of employment.   While IC 6-3-2-1(a) could be read to require and employer who is required to withhold the full Indiana rate (3.23%) over and love wherever rate the employer might be withholding with regard to another state’s income tax, the department does not require withholding in this situation.”   

My Question: 

Based on Information Bulletin #28 it  does not appear a penalty should be imposed as Non-resident state withheld more than Indiana Rate.    How do I enter this in Turbo Tax to end up with correct refund from IL and correct amount due to IN without penalty imposed ?  

[Mike9241]

was iL done first - Turbotax requires that it be done first so proper credit is calculated for your resident state.   there are issues with the IL return

the IL tax is reported on the return on line 11 and comes from form NR

line 13 s/b 0. doubt you would have recapture of investment credit.

line 25 should show the Il withholding $2119 it also shows on form WIT

line 31 should show the overpayment of $2106

IN credit for taxes paid to other states would like;y be based on the $253 taxes to IL, the $13, and with a lower rate than IL would be less than the tax paid to Il

Penalty in IN is likely if you had no IN tax withheld to cover your tax liability there

as a resident of IN you should be paying taxes on your total compensation. (likely the amount in box 1 of your W-2 (did you earn $over $100,000 in compensation. we don't know if the $65K shown for IN includes the $44K for IL.) 

we can't see your 

[RLCPEC1976]

was iL done first - Turbotax requires that it be done first so proper credit is calculated for your resident state.   there are issues with the IL return  **Yes, non-resident state IL was completed before resident state IN

the IL tax is reported on the return on line 11 and comes from form NR

line 13 s/b 0. doubt you would have recapture of investment credit.

line 25 should show the Il withholding $2119 it also shows on form WIT   ** Yes this is what is shows

line 31 should show the overpayment of $2106  **Yes this is what it shows

IN credit for taxes paid to other states would like;y be based on the $253 taxes to IL, the $13, and with a lower rate than IL would be less than the tax paid to Il (** however not less that tax withheld by non-resident state IL)

Penalty in IN is likely if you had no IN tax withheld to cover your tax liability there  (** Bulletin #28 Page 6 indicates IN would not require IN withholding where non-resident state is withholding amount more that IN rate)

as a resident of IN you should be paying taxes on your total compensation. (likely the amount in box 1 of your W-2 (did you earn $over $100,000 in compensation. we don't know if the $65K shown for IN includes the $44K for IL.)   ** Yes 65K is total earned income from W-2,  the $1,938 I need to send to IN + amount already withheld  for local county tax would represent the total tax liability to resident state for 2021.  It is a matter sending IN a check and waiting for IL to send refund of overpayment.  

** I did find at top of IN IT-2210 that checking the box to have Indiana DOR figure the underpayment penalty removes the $99 charge.  Seems one option may be to mail in hard copy of IN & IL returns with letter showing actual income earned while physically in IL and reference to Bulletin #28 then wait for IN DOR to communicate if penalty is due of if bulletin interpretation applies.     

[AmyC]

Regarding "IN credit for taxes paid to other states"  - The credit your resident state gives is the lower of each state's tax on the same income. The amount withheld does not affect the calculation of the credit- nor does the refund. The actual tax liability is the issue on the amount of income.

Regarding "Penalty in IN" - they may or may not let you off the hook this year. However, the governments expect to be paid as you earn the income which is why estimated payments exist. You should make estimated payments moving forward if this will be the case again. If the withholding state is withholding more than you will owe because they have a higher tax rate, then no estimates are needed. This was not your case since you have a tax liability. What they mean is you earn $50,000 out of state and the other state taxes 20% versus the smaller amount in IN and that is all of your income, you will get a full credit against your income with no tax due and no estimates needed.

Double check that IN is only taxing your actual income and not adding together the two incomes. If it is giving you a higher income than it should, you can delete IN income on the w2.  Your resident state automatically taxes all income.

You can let the state determine the penalty and you can appeal that this is a first time offense and ask for a waiver.