Indiana Resident Working in Louisville KY

[fefem]

Hello,

I am an Indiana resident working in Louisville KY.  I have state tax withheld for Indiana and locality tax withheld for Louisville KY. Turbotax has me file my taxes for Indiana and Kentucky. Do I need to file my taxes for both states?

My Kentucky return is unable to be processed because the 740 NPR form is incomplete. However, I cannot find a link to this form despite stating my status as a qualifying reciprocal nonresident. Where can I find this form? How can I enter this form into Turbotax? 

If I receive a state and locality tax return, will my returns come from Kentucky or Indiana? What is the income level required to pay state and locality taxes in Indiana and Kentucky? 

Thank you!

[LenaH]

No. You only have to file a resident Indiana return. You do not have to file a nonresident Kentucky return (740 NR). 

Kentucky has reciprocal agreement with the state of Indiana, which means that all salaries, wages, tips, and commissions earned in Kentucky by an Indiana resident must be reported as if they were earned in Indiana. A credit cannot be taken for any taxes withheld by or paid to any of these states in connection with income from salaries, wages, tips, and commissions. If taxes have been withheld or paid to Kentucky, a claim for refund should be filed with that state by filing a Kentucky tax form for nonresidents.

As far as the local taxes withheld, If you work in Kentucky and live in Indiana, you may get a credit or partial credit on your Indiana return for paying local tax to the Kentucky. This will depend on the rules and regulations of your resident county. If they do allow the credit, then you will see it on your interview screens when you are going through your Indiana state tax return. 

[Janet516]

This is so confusing. The note says: The tax paid to the other state is the tax calculated on the other state's income tax return, NOT the tax withheld from your wages. Since we are not filing a KY state return, where do I find this number?!

[KrisD15]

If you are not filing a KY return because you do not have to pay tax (no tax liability) then the amount is zero. 

If you do not have to pay KY tax, then there should not have been any state tax withheld on your W-2.

If you are an Indiana resident and work in Kentucky, which is what this thread is addressing, you should only have had Indiana tax withheld. 

In this situation, there is NO Kentucky tax so NO credit for tax paid to the state of Kentucky. 

This is because Kentucky and Indiana have a Reciprocal Agreement. 

If the employer did withhold Kentucky tax, you would file a Kentucky State tax return to get this tax back. 

When working and living in two different state which DO NOT have a reciprocal agreement, there can be a credit. 

The credit is for the tax you ULTIMATELY pay, which is computed by doing a state tax return. 

If I file a state return and it says my tax is $1,000, it doesn't matter how much was withheld, my tax is still $1,000. 

If I had 200 withheld, I would owe 800. 

If I had 1,500 withheld, I would get a 500 refund. 

Either way, my tax liability is 1,000 and that can only be calculated by dong a state return. 

If you paid local tax to a city or county in a different state, and you want to take a credit for that tax, you would need to compute that city or county tax return. In TurboTax, these local returns are usually in with the state returns. You could use the state return in TurboTax to compute the local return, or do one manually. 

The tax is usually miniscule, so a credit would be small.